Joseph J. John, Esq.
J. Farrell, Esq.
Wheeling, West Virginia Charlotte A. Hoffman, Esq.
Anthony I. Werner, Esq. Farrell, Farrell & Farrell
Paul T. Tucker, Esq. Huntington, West Virginia
Bachmann, Hess, Bachmann & Garden Attorneys for Appellants
Wheeling, West Virginia
Attorneys for Appellees
James S. Crockett, Jr., Esq. E.
Kay Fuller, Esq.
Mary M. August, Esq. Martin & Seibert, L.C.
Spilman, Thomas & Battle Martinsburg, West Virginia
Charleston, West Virginia Attorney for Amicus Curiae Progressive
Attorneys for Amicus Curiae West Paloverde Insurance Company
Virginia Insurance Federation
JUSTICE STARCHER delivered the Opinion of the Court.
JUSTICE DAVIS concurs and reserves the right to file a concurring opinion.
CHIEF JUSTICE MAYNARD concurs, in part, and dissents, in part, and reserves the right to file a separate opinion.
2. The primary object in construing a statute is to ascertain and give effect to the intent of the Legislature. Syllabus Point 1, Smith v. State Workmen's Compensation Com'r, 159 W.Va. 108, 219 S.E.2d 361 (1975).
3. A statutory provision which is clear and unambiguous and plainly expresses the legislative intent will not be interpreted by the courts but will be given full force and effect. Syllabus Point 2, State v. Epperly, 135 W.Va. 877, 65 S.E.2d 488 (1951).
4. The Unfair Trade Practices Act, W.Va. Code §§ 33-11-1 to -10, and the tort of bad faith apply only to those persons or entities and their agents who are engaged in the business of insurance. Syllabus Point 2, Hawkins v. Ford Motor Co., 211 W.Va. 487, 566 S.E.2d 624 (2002).
5. A defense attorney who is employed by an insurance company to represent an insured in a liability matter is not engaged in the business of insurance. The defense attorney is therefore not directly subject to the provisions of the West Virginia Unfair Trade Practices Act, W.Va. Code, 33-11-1 to -10.
6. A claimant
can establish a violation of the West Virginia Unfair Trade Practices Act, W.Va.
Code, 33-11-1 to -10, by showing that an insurance company, through its own actions, breached its duties under the Act by knowingly encouraging,
directing, participating in, relying upon, or ratifying wrongful litigation
conduct of a defense attorney hired by the insurance company to represent
In this appeal of an order from the Circuit Court of Ohio County, an insurance company and an insurance claims representative challenge the circuit court's conclusion that a defense attorney, hired by the insurance company to defend the interests of an insured in a liability matter, was subject to the provisions of the West Virginia Unfair Trade Practices Act, W.Va. Code, 33-11-1 to -10. The circuit court ruled that the duties imposed by the Act upon the insurance company are not delegable, and that the insurance company could be held liable for any violations of the Act by a defense attorney employed by the insurance company to defend an insured in an underlying medical malpractice case.
As set forth below, we affirm,
in part, and reverse, in part, the circuit court's order. We reverse the circuit
court's conclusion regarding the duties of a defense attorney under the Act,
and hold that a defense attorney who is employed by an insurance company to represent
the interests of an insured in a liability matter is not directly subject to
the provisions of the Act. However, we affirm the circuit court's order to the
extent that it holds that an insurance company is not relieved of its duty to
comply with the Act by employing a defense attorney to represent the interests
of an insured, and may be found liable under the Act for its own actions when
it knowingly encourages, directs, participates in, relies upon, or ratifies certain
wrongful litigation conduct of a defense attorney.
Ms. Rose's malpractice claim began on August 21, 1998, when Dr. David Shaffer performed an outpatient surgical procedure and negligently burned through the appellee's spinal accessory nerve. After the surgery, the appellee experienced pain in her shoulder and difficulty moving her right arm. As time passed her trapezius muscle began to wither and her shoulder began to droop. A physician at the Cleveland Clinic diagnosed and repaired the error in March 1999, but the disfigurement to the appellee's shoulder was permanent.
In January 2000, appellee Rose sued Dr. Shaffer for medical malpractice. Dr. Shaffer referred the lawsuit to his malpractice insurance company, appellant St. Paul, and St. Paul retained defense attorney Joseph Katarincic to defend Dr. Shaffer. During the course of litigation, the appellee asserts that Mr. Katarincic and an associate, Carl DePasquale, engaged in numerous improper acts _ and that Mr. Brown, who was a St. Paul employee and the claims adjuster assigned to the case, assisted, encouraged, approved, and/or acquiesced in those improper acts. The appellee asserts that St. Paul can be held liable for the conduct of the defense attorneys, as well as for the conduct of Mr. Brown in tolerating, encouraging or assisting that behavior.
An example of litigation misconduct cited by the appellee is Dr. Shaffer's September 2000 deposition testimony, where he asserted that his hospital privileges had never been revoked or suspended. (See footnote 1) The appellee has since discovered notes in St. Paul's records, recording a conversation between Mr. Brown and Mr. Katarincic in August 2000, to the effect that Dr. Shaffer's hospital privileges had in fact previously been suspended. (See footnote 2) In a report later written by Mr. Brown regarding the appellee's case, a report which justified the ultimate settlement of the malpractice case, Mr. Brown again stated that [i]n the fall and winter of 2000, we learned that Dr. Shaffer had his privileges at both of the hospitals in Wheeling revoked. The appellee argues that Mr. Brown, St. Paul, and Mr. Katarincic knew that Dr. Shaffer was being less than truthful in his deposition testimony in September 2000, but made no attempt to correct or amend his statement. (See footnote 3)
Several weeks before trial, on March 29, 2001, the appellee settled her medical malpractice action against Dr. Shaffer for $800,000.00. After the settlement, and during discovery in the instant case, the appellants produced a confidential, internal loss report prepared by Mr. Brown discussing the settlement in which he stated that there was no chance to successfully defend this case and estimated the full value of the appellee's damages at $1.25 million.
On October 21, 2001, the appellee brought the instant action under the UTPA against appellants St. Paul and Mr. Brown. (See footnote 4) The appellee's complaint asserted, among other theories, that the appellants should be held liable for the litigation misconduct of the defense attorneys hired to defend Dr. Shaffer. The complaint alleges, in part:
[Appellants] have acted wrongfully, and in contravention of the law, in relation to [appellees]' claims of the underlying action. Their wrongful and illegal conduct includes:
a. directing, acquiescing, participating
in, and/or ratifying unlawful and improper behavior committed by counsel retained
to defend Dr. Shaffer; . . .
f. asserting defenses to the claims, which defenses had no basis in law nor fact;
g. engaging in unreasonable and abusive discovery;
h. unlawfully communicating with [appellee] Linn Rose's healthcare providers.
The appellants later filed a motion seeking to dismiss those portions of the appellee's case that would hold St. Paul liable under the UTPA for the litigation conduct of defense counsel. The circuit court, in a hearing on the issue, stated that the conduct of anybody acting on behalf of the insurance company is attributable to the insurance company. The court subsequently entered an order on September 12, 2002, specifically stating that:
[T]he duties imposed upon defendants
[St. Paul and Mr. Brown] under §33-11-4(9) of the West Virginia Unfair Trade
Practices Act are not delegable, and that the defendants can be held liable for
the conduct of the attorneys employed to defend the underlying action against
Dr. Shaffer to the extent that the conduct implicates the various provisions set forth in §33-11- 4(9)
of the Unfair Trade Practices Act.
The circuit court declared that its order was a final order entered pursuant to Rule 54(b) of the Rules of Civil Procedure and, finding that there was no just reason for delay, directed the entry of final judgment on the issues addressed herein for purposes of appeal.
St. Paul and Mr. Brown now appeal the circuit court's September 12, 2002 order.
The appellants' primary contention on appeal is that the provisions of the UTPA apply only to people, entities or their agents who are engaged in the business of insurance. The appellants contend that defense attorneys hired to defend an insured pursuant to a liability insurance policy are not subject to the provisions of the UTPA because they are not engaged in the business of insurance, but rather are engaged in the practice of law. (See footnote 5)
The appellee responds that she is not pursuing a case against the defense attorneys, but is only contending that the appellants violated the UTPA by the manner in which they directed, ratified, encouraged, participated in, or acquiesced to the actions of the defense attorneys. The appellee contends that an insurance company should be held liable for the wrongful acts or omissions of an attorney hired to defend an insured, particularly when those acts or omissions were directed, commanded, or knowingly authorized by the insurance company.
The issue raised by the parties requires us to interpret the West Virginia Unfair Trade Practices Act, W.Va. Code, 33-11-1 to -10. The primary object in construing a statute is to ascertain and give effect to the intent of the Legislature. Syllabus Point 1, Smith v. State Workmen's Compensation Com'r, 159 W.Va. 108, 219 S.E.2d 361 (1975). Once the legislative intent underlying a particular statute has been ascertained, we proceed to consider the precise language thereof. State ex rel. McGraw v. Combs Services, 206 W.Va. 512, 518, 526 S.E.2d 34, 40 (1999). Moreover, when we interpret a statutory provision, this Court is bound to apply, and not construe, the enactment's plain language. We have held that [a] statutory provision which is clear and unambiguous and plainly expresses the legislative intent will not be interpreted by the courts but will be given full force and effect. Syllabus Point 2, State v. Epperly, 135 W.Va. 877, 65 S.E.2d 488 (1951).
The stated purpose of the UTPA is to regulate trade practices in the business of insurance . . . by defining, or providing for the determination of, all such practices in this State which constitute unfair methods of competition or unfair or deceptive acts or practices and by prohibiting the trade practices so defined or determined. W.Va. Code, 33-11-1  (emphasis added). The Act achieves this purpose by expressly prohibiting any person from engaging in any trade practice which is defined in this article as, or determined pursuant to section seven [W.Va. Code, 33-11-7] of this article to be, an unfair method of competition or an unfair or deceptive act or practice in the business of insurance. W.Va. Code, 33-11-3 . For example, in Taylor v. Nationwide Mut. Ins. Co., 214 W.Va. 324, 589 S.E.2d 55 (2003), we concluded that a claims adjuster employed by an insurance company is a person in the business of insurance who is subject to regulation under the UTPA. A claimant may bring an action for damages, including expenses, attorney's fees, and punitive damages, caused when a person in the business of insurance violates the UTPA. Jenkins v. J.C. Penney Cas. Ins. Co., 167 W.Va. 597, 280 S.E.2d 252 (1981), overruled on other grounds by State ex rel. State Farm Fire & Cas. Co. v. Madden, 192 W.Va. 155, 451 S.E.2d 721 (1994). (See footnote 6)
The Act is specifically designed, by its own terms, to regulate only those entities and individuals who are engaged in the business of insurance. In Hawkins v. Ford Motor Co., 211 W.Va. 487, 566 S.E.2d 624 (2002), we considered the meaning of the phrase business of insurance, and whether a self-insured company met that definition. We focused our analysis on the legislatively-stated definitions of insurance, insurer, and transacting insurance:
The West Virginia Code defines
insurance as a contract whereby one undertakes to indemnify another or
to pay a specified amount upon determinable contingencies. W.Va. Code § 33-1-1
(1957). An [i]nsurer is every person engaged in the business of making
contracts of insurance. W.Va. Code § 33-1-2 (1957). Specifically, [t]ransacting
insurance includes solicitation and inducement, preliminary negotiations, effecting
a contract of insurance and transaction of matters subsequent to effecting the
contract and arising out of it. W.Va. Code § 33-1- 4 (1957).
211 W.Va. at 491, 566 S.E.2d at 628. Putting these definitions together, we concluded that even though a company may choose to insure its own losses, if the primary purpose of the company is some venture other than dealing in insurance _ that is, the company is under no contractual obligation to pay a claim and does not transact insurance as defined by law _ then the company is not in the business of insurance and not subject to the regulation of the UTPA. We stated, in Syllabus Point 2 of Hawkins, that:
The Unfair Trade Practices Act,
W.Va. Code §§ 33-11-1 to - 10, and the tort of bad faith apply only
to those persons or entities and their agents who are engaged in the business
We held in Hawkins that the self-insured company at issue _ Ford Motor Company _ primarily manufactured and sold cars and did not engage in the business of insurance, and was therefore not subject to the UTPA.
In the instant case, we do not perceive a defense attorney, employed by an insurance company to represent an insured in a liability matter, to be a person who is in the business of insurance. There is nothing to suggest that the defense attorneys in this case had any contractual obligations to pay the appellee's claim against Dr. Shaffer, nor anything to suggest the defense attorneys made, solicited, negotiated, or otherwise directly acted in any manner pursuant to the terms of an insurance contract. The defense attorneys were employed by the insurance company to defend the interests of the insured; the insurance contract at issue bound only the insurance company and the insured. The defense attorneys' ethical attorney-client obligations were to the insured, Dr. Shaffer. State ex rel. Allstate Ins. Co. v. Gaughan, 203 W.Va. 358, 372, 508 S.E.2d 75, 89 (1998). Any obligations imposed by an insurance contract were between Dr. Shaffer and St. Paul, and the defense attorneys were neither parties to nor bound by that contract. See ABA Formal Opinion 01-421, Ethical Obligations of a Lawyer Working Under Insurance Company Guidelines and Other Restrictions, 30 Brief 45, 46 (Summer 2001) ([T]he rules of professional conduct _ and not the liability insurance contract _ govern the lawyer's ethical obligations to his client[.]).
We therefore conclude that under these circumstances, a defense attorney who is employed by an insurance company to represent an insured in a liability matter is not engaged in the business of insurance. The defense attorney is therefore not directly subject to the provisions of the West Virginia Unfair Trade Practices Act. (See footnote 7)
Our holding does not, however, absolve the appellants from all potential responsibility under the UTPA. While attorneys and other individuals who are not in the business of insurance are not directly bound by the UTPA, an insurance company and its employees who are in the business of insurance must continue to comply with the UTPA, even if a defense attorney has been hired by the insurance company to defend a claim against an insured. A claimant can establish a violation of the UTPA by showing that an insurance company, through its own actions, breached its duties under the Act by knowingly encouraging, directing, participating in, relying upon, or ratifying the wrongful litigation conduct of a defense attorney hired by the insurance company to represent an insured. Actionable wrongful litigation conduct by a defense attorney, to be binding on the insurance company, is conduct that, if it were committed by a person or entity in the business of insurance, would constitute a violation of the UTPA.
For example, the UTPA makes clear that an insurance company must fully investigate an insurance claim, and make a reasonable offer to settle the claim if warranted by the evidence. W.Va. Code, 33-11-4(9)(c) requires an insurance company to have reasonable standards for the prompt investigation of claims arising under insurance policies, while W.Va. Code, 33-11-4(9)(d) states that the company may not [r]efus[e] to pay claims without conducting a reasonable investigation based upon all available information[.] With the information obtained from the investigation, W.Va. Code, 33-11- 4(9)(f) requires the insurance company to attempt in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear.
An insurance company can be held
liable for its own actions _ regardless of the actions of any insurance-company-hired
defense attorney _ in failing to comply with these statutory requirements in
the course of resolving a claim. So, for instance, if a claimant was able to
establish that an insurance company knew that a defense attorney was engaging
in litigation misconduct (say, offering the perjured testimony of a witness)
and the insurance company knowingly encouraged, directed, participated in, relied
upon, or ratified that misconduct (say, by not seeking out other known witnesses
and knowingly using the perjured testimony as a basis for refusing to settle
the claim), then a jury could fairly conclude that the insurance company had
failed to conduct a reasonable investigation and failed to make a good
faith attempt to settle the case as required by the Act. See, e.g., Federated
Mut. Ins. Co. v. Anderson, 297 Mont. 33, 43, 991 P.2d 915, 922 (1999) (after
court made judicial determination insurance coverage existed under policy, insurance company
violated unfair trade practices act by continuing to deny coverage and having
attorney file a meritless appeal that included inconsistent and
conflicting positions, inaccurate citations to authority, and lack of support
for claims on appeal, because [m]eritless appeals are not legitimate
In light of the many potential
transgressions in the record, we find it necessary to refer this matter to the
Office of Disciplinary Counsel for further review, in accordance with our obligation
to do so pursuant to Rule 8.3(a) of the Rules of Professional Conduct and
Canon 3D(2) of the Code of Judicial Conduct. See Rule 8.3(a) (A
lawyer having knowledge that another lawyer has committed a violation of the
Rules of Professional Conduct that raises a substantial question as to that lawyer's honesty, trustworthiness
or fitness as a lawyer in other respects, shall inform the appropriate professional
authority.); W.Va. Code of Jud. Conduct Canon 3D(2) (A
judge who receives information indicating a substantial likelihood that a
lawyer has committed a violation of the Rules of Professional Conduct should
take appropriate action. A judge having knowledge that a lawyer has committed
a violation of the Rules of Professional Conduct that raises a substantial
question as to the lawyer's honesty, trustworthiness, or fitness as a lawyer
in other respects shall inform the appropriate authority.). See
also Covington v. Smith, 213 W.Va. 309, 582 S.E.2d 756 (2003)
(referring a matter to the Office of Disciplinary Counsel for further proceedings); Gum
v. Dudley, 202 W.Va. 477, 491, 505 S.E.2d 391, 405 (1997) (same). Accordingly,
we direct the Clerk of the Supreme Court of Appeals to transmit a certified
copy of this Opinion to that tribunal.
However, the circuit court correctly determined that an insurance company's duties under the UTPA are not delegable. An insurance company is responsible for its own actions under the UTPA, not those of a defense attorney employed to represent an insured. To the extent that the circuit court's order so holds, it is affirmed.
In sum, the appellants cannot be held directly liable under the UTPA for the litigation misconduct of the defense attorneys, but may be held liable for their own actions in knowingly encouraging, directing, participating, relying upon or ratifying that behavior.
Accordingly, the circuit court's
September 12, 2002 order is affirmed, in part, reversed, in part, and the case
is remanded for further proceedings not inconsistent with this opinion.
Underwriting Ass'n, 352 N.C. 61, 529 S.E.2d 676 (2000); O'Donnell ex rel. Mitro v. Allstate Ins. Co., 734 A.2d 901 (Pa.Super. 1999); Theriot v. Midland Risk Ins. Co., 694 So.2d 184 (La. 1997); Auto-Owners Ins. Co. v. Conquest, 658 So.2d 928 (Fla. 1995); Urban v. Mid- Century Ins., 79 Wash.App. 798, 905 P.2d 404 (1995); New Mexico Life Ins. Guar. Ass'n v. Quinn & Co., Inc., 111 N.M. 750, 809 P.2d 1278 (1991); State Farm Mut. Auto. Ins. Co. v. Reeder, 763 S.W.2d 116 (Ky. 1989); Crystal Bay General Imp. Dist. v. Aetna Cas. & Sur. Co., 713 F.Supp. 1371 (D.Nev. 1989); Vail v. Texas Farm Bureau Mut. Ins. Co., 754 S.W.2d 129 (Tex. 1988); Shaheen v. Preferred Mut. Ins. Co., 668 F.Supp. 716 (D.N.H. 1987) (consumer may file private action under insurance unfair trade practice statute if insurance commissioner first finds insurance company violated the statute) (see also, WVG v. Pacific Ins. Co., 707 F.Supp. 70 (D.N.H. 1986) (suit allowed against insurance company under consumer protection act)); Van Dyke v. St. Paul Fire & Marine Ins. Co., 388 Mass. 671, 448 N.E.2d 357 (1983); Klaudt v. Flink, 202 Mont. 247, 658 P.2d 1065 (Mont. 1983) (superseded on other grounds by statute, O'Fallon v. Farmers Ins. Exchange, 260 Mont. 233 , 859 P.2d 1008 (1993)); Griswold v. Union Labor Life Ins. Co., 186 Conn. 507, 442 A.2d 920 (1982); Sparks v. Republic Nat. Life Ins. Co., 132 Ariz. 529, 647 P.2d 1127 (1982). See also, Heyden v. Safeco Title Ins. Co., 175 Wis.2d 508, 498 N.W.2d 905 (Ct.App. 1993) (overruled on other grounds by Weiss v. United Fire and Cas. Co., 197 Wis.2d 365, 541 N.W.2d 753 (1995)) (regulations under unfair claims settlement statute admissible as proof insurance company acted unreasonably under the circumstances and therefore in bad faith); Walston v. Monumental Life Ins. Co., 129 Idaho 211, 216, 923 P.2d 456, 461 (1996) (violation of the unfair claims settlement practices statute constitutes evidence of an extreme deviation from customary practices relevant to the state of mind that is necessary to establish fraud.); State Farm Mut. Auto. Ins. Co. v. Weiford, 831 P.2d 1264 (Alaska 1992) (trial court did not err in basing bad faith jury instruction upon state's unfair trade practices statute); Ford Motor Credit Co. v. Manzo, 196 Ill.App.3d 874, 554 N.E.2d 480 (1st Dist. 1990) (insurance company's violation of the unfair claims settlement practices statute established that its conduct was vexatious). Compare Farmers Union Central Exchange, Inc. v. Reliance Ins. Co., 626 F.Supp. 583 (D.N.D. 1985) (finding North Dakota would allow third-party claims under the Model Act) with Farmers Union Central Exchange, Inc. v. Reliance Ins. Co., 675 F.Supp. 1534 (D.N.D. 1987) (rejecting argument that North Dakota would allow third-party claims).