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Boulders at Escalante-Foreseeability and Causation in Legal Malpractice Actions

  • July 9, 2015
  • Miles Buckingham
  • Comments Off on Boulders at Escalante-Foreseeability and Causation in Legal Malpractice Actions

On June 18, 2015 the Court of Appeals issued its opinion in Boulders at Escalante LLC v. Otten Johnson Robinson Neff and Ragonetti PC, 2015 COA 85. The case carries significant implications for legal malpractice cases in Colorado.

The case involves a developer who was sued by a contractor, and who asserted counterclaims. The developer asked his attorneys (Otten Johnson) whether there was any insurance that would be available to compensate the developer on its counterclaims. The attorneys advised the developer that there was insurance available to indemnify the contractor on the counterclaims. Based on that advice, the developer continued pursuing the counterclaims while removing seventeen townhomes off the market during the prosecution of the counterclaims.

The developer subsequently discovered that the insurance policy for the counterclaim defendant would not pay out on the successful prosecution of the counterclaims due to an exception for claims by one insured against another insured. The developer settled the case against the contractor, attempted to sell the townhomes, and sued its attorneys.

At trial and the jury found in favor of the developer and awarded over $2.7 million in damages – the majority of which was based on business losses from taking the townhomes off the market in 2007 and trying to sell them in a less favorable market in 2008.

In reversing the award, the Court of Appeals addresses the foreseeability requirement inherent in proving causation in legal malpractice cases. The Court finds that the developer was not entitled to damages related to taking the townhomes off the market because “as a matter of law, Law Firm’s advice regarding the insurance coverage was not the legal, or proximate, cause” of the losses. ¶65. The Court reasons that the foreseeable loss was the loss associated with recovering on a judgment related to the counterclaims, but not the business decisions made in anticipation of that recovery. In ruling, the Court of Appeals limited the plaintiff’s recovery to damages associated with the risks to which the law firm’s advice was addressed. ¶72.

Due to factors such as those addressed in Boulders at Escalante, the ‘Case within a Case’ doctrine, and a number of other relatively unique aspects of the area of law, legal malpractice actions remain some of the most complex areas of litigation in Colorado law. The attorneys of Nemirow Perez P.C. have significant experience in this field, and are available to assist you and your firm in the defense of legal malpractice claims, requests for investigation of professional licenses, and several other fields of complex and nuanced litigation.