In September, the Washington State Supreme Court granted review in a case raising important conflict and disclosure issues in the context of a reservation of rights insurance defense.
Arden v. Forsberg & Umlauf, P.S., 193 Wn. App. 731, 373 P.3d 320 (2016), review granted sub nom.Arden v. Forsberg Umlauf, PS, 2016 WL 5407925 (Wash. Sept. 28, 2016).
Plaintiff Arden shot a neighbor’s dog and when the neighbor sued him and his wife, he submitted the claim to his homeowner’s insurer, Property and Casualty Insurance Company of Hartford (Hartford). Hartford initially declined coverage under the “intentional act” exclusion in the policy, but after the Ardens hired personal counsel, he convinced Hartford that it had a duty to defend the negligence claim. Hartford undertook the defense under a reservation of rights and hired Forsberg and Umlauf to defend the Ardens. Forsberg and Umlauf had defended other insureds for Hartford and had also represented Hartford on coverage claims. Eventually, after mediation, Hartford funded a settlement of the neighbors’ lawsuit against the Ardens, But by that time, the Ardens had sued Forsberg & Umlauf for breach of fiduciary duty and malpractice. They alleged that the lawfirm and lawyers who represented them had an undisclosed and unwaived conflict of interest. They also alleged that the firm had had failed to disclose to them various settlement offers and counteroffers, and had failed to consult with them adequately during settlement negotiations. The trial court granted summary judgment for the law firm and the appeals court affirmed. It found that there was no conflict of interest under RPC 1.7 and so so violation of the firm’s fiduciary duties to the Ardens on that score. It also found that Hartford had not violated its duties under Tank v. State Farm by failing to provide independent counsel. Finally, even if there were aspects in which the law firm had failed adequately to consult with the Ardens during settlement negotiations, there was no evidence that the Ardens had been injured by this failure, so no relief was available for these breaches.
Since the state Supreme Court has granted review, it may well be that it will take the opportunity to further clarify the obligations of defense counsel hired by insurance companies under a reservation of rights.