Schiff Hardin law firm. Photo by Diego M. Radzinschi/THE NATIONAL LAW JOURNAL

The U.S. Court of Appeals for the Fifth Circuit has shut down an Irish insurance company's attempt to sue Schiff Hardin for negligent misrepresentation after determining the law firm could not be liable to a nonclient under the attorney immunity defense doctrine.

The case, Ironshore Europe DAC v. Schiff Hardin, focused on allegations that the Chicago-based law firm failed to tell the plaintiff insurer Ironshore about a $3.25 million settlement offer. Instead the company was hit by a $34 million jury verdict.

Schiff Hardin was representing Dorel Juvenile Group, a company that held an excess insurance policy issued by Ironshore. Dorel, which makes car seats, was sued for products liability by the parents of a child injured in a car accident involving one of its products, according to the decision.

Schiff Hardin regularly communicated with Ironshore while representing Dorel. Specifically, Ironshore was concerned it would be required to pay out on the policy if the case resulted in an award or settlement in excess of $6 million, the court said.

Ironshore claimed Schiff Hardin misled it into believing it was unlikely the case would result in any exposure, and that a settlement offer within policy limits was unwarranted.

After Ironshore filed its negligent misrepresentation claim, Schiff Hardin asked U.S. District Judge Rodney Gilstrap of Marshall to dismiss the case under the Texas attorney immunity doctrine, which generally shields lawyers from civil liability to nonclients for actions taken in connection with representing a client.

Gilstrap noted in his decision that Texas law has long recognized that an attorney may be liable for negligent misrepresentation where a third party, even a nonclient, justifiably relies on the attorney's misrepresentations, under Section 552 of the Restatement of Torts.

“Accordingly, the court concludes that as it stands under current Texas law, the doctrine of attorney immunity does not foreclose a Section 552 negligent misrepresentation claim,” Gilstrap wrote in his decision partially denying the law firm's motion to dismiss.

Schiff Hardin appealed the ruling to the Fifth Circuit, arguing it was entitled to full attorney immunity against Ironshore's negligent misrepresentation claim.

In its decision, the Fifth Circuit concluded that Schiff Hardin's conduct at issue in the case fell squarely within the scope of the firm's representation of its client Dorel. The court also ruled that it was not bound to accept Ironhorse's argument that the alleged misrepresentations were somehow separate from the law firm's representation of Dorel.

“Schiff Hardin's first duty was to its client, Dorel, and it was up to Ironshore to retain its own counsel if it was dissatisfied with the comprehensiveness of the information it was receiving from its insured's attorneys,” wrote Judge W. Eugene Davis.

“Therefore, we find that the requirements for attorney immunity are met, Schiff Hardin's Rule 12(b)(6) motion to dismiss should be granted, and the plaintiff's complaint should be dismissed,” Davis wrote in a decision reversing the trial court's decision and rendering judgment dismissing Ironshore's complaint.

George Kryder, a partner in the Dallas office of Vinson & Elkins who represents Schiff Hardin, did not return a call for comment.

Sawnie McEntire, a partner in Dallas' Parsons McEntire McCleary who represents Ironshore, also did not return a call for comment.