ROFF ARDEN and BOBBI ARDEN, adult husband and wife, Petitioners,
FORSBERG & UMLAUF, P.S., a Washington State professional services corporation; JOHN HAYES and "JANE DOE" HAYES, adult Washington State residents including any marital community; WILLIAM "CHRIS" GIBSON and "JANE DOE" GIBSON, adult Washington State residents including any marital community; and DOE DEFENDANTS I through V, Respondents.
case involves claims of breaches of fiduciary duty and legal
malpractice against lawyers hired to defend insureds in a
civil action where the insurance company provided the
defense. The insureds claim the lawyers violated
their professional responsibilities by failing to disclose a
potential conflict based on a long-standing relationship the
law firm had with the insurance company in not only accepting
cases representing insureds in civil cases, but also at some
time representing the insurance company in coverage disputes.
The insureds also claim the attorneys violated their
professional responsibilities by failing to advise them of
settlement negotiations and by taking settlement directions
from the insurer.
Court of Appeals affirmed the trial court's summary
judgment dismissal and held that under the facts of this
case, the Ardens failed to establish an actionable breach.
Arden v. Forsberg & Umlauf, PS, 193 Wn.App. 731,
373 P.3d 320, review granted, 186 Wn.2d 1009, 380
P.3d 484 (2016). While we disagree with portions of the Court
of Appeals' analysis, we affirm in result.
and Procedural History
and Bobbi Arden had homeowners insurance with Property and
Casualty Insurance Company of Hartford (Hartford). In
December 2011, Roff Arden, allegedly suffering a
posttraumatic stress disorder attack, shot and killed a,
six-month-old Labrador puppy owned by his neighbors Wade and
Ann Duffy. In June 2012, the Duffys sued the Ardens, alleging
willful conversion, malicious injury, intentional infliction
of emotional distress, and gross negligence. The Ardens
sought liability coverage with their insurer, Hartford.
Initially, Hartford denied a defense and coverage based on
the policy's intentional act exclusion. The Ardens
thereafter retained private counsel, Jon Cushman, to seek
coverage and to assert counterclaims against the Duffys. In
November 2012, after communications from Cushman, Hartford
agreed to defend and provide representation to the Ardens.
Hartford appointed attorneys John Hayes and William
"Chris" Gibson of the firm Forsberg & Umlauf PS
to defend against the Duffys' claims. It was made clear
that the appointed attorneys would not represent the Ardens
in the counterclaims. Cushman remained as counsel in the
lawsuit for those purposes.
no evidence exists nor do the Ardens claim in the record that
Hayes, Gibson, or the Forsberg firm simultaneously
represented the Ardens and Hartford, deposition testimony
shows that both Hayes and Gibson (hereinafter referred to
collectively along with Forsberg & Umlauf PS as
"Forsberg") had a "long-standing
relationship" with Hartford. Arden, 193 Wn.App.
at 745. Forsberg had an established relationship with
Hartford that included representing Hartford on coverage
matters as well as representing Hartford's insureds. The
record indicates Forsberg did not disclose its relationship
with Hartford to the Ardens.
matters progressed relatively quickly. A few weeks after
being appointed, the Ardens met with Forsberg and Cushman to
discuss the case. It was agreed that a settlement plan would
be developed by Forsberg, and it was understood that the
Ardens' position was that Hartford pay any settlement and
that the Ardens contribute nothing.
discovery interrogatories were sent to the Duffys. On January
18, 2013, the Duffys presented a settlement demand of $55,
000. Concerned about potential criminal exposure, the Ardens
wished to resolve the case quickly. On behalf of the Ardens,
Cushman informed Forsberg that the Ardens wished to accept
the settlement offer and demanded that Hartford fully fund
the settlement. Hartford refused and requested that an
extension on the settlement offer be sought in order to
obtain discovery from the Duffys. On January 30, 2013,
Hartford issued a reservation of rights (ROR) letter.
February 25, 2013, after discovery was completed, a phase
litigation report was prepared by Forsberg, valuing the
Duffys' claim up to $35, 000. This report was
communicated to Hartford and to Cushman, and was approved by
Cushman. No objection to the plan was made.
March 5, 2013, Hartford, after issuing the ROR, authorized a
settlement offer of $18, 000. The offer was rejected by the
Duffys. Cushman then contacted the Duffys and requested a
counteroffer. The Duffys responded with a $40, 000 demand and
indicated it was their final offer. Consistent with the
Ardens' directions, Cushman again demanded that Hartford
fund the settlement. On March 14, 2013, Hartford notified
Forsberg that it would not fund a $40, 000 settlement but
authorized a counteroffer at $25, 000, which Hartford would
pay. While the settlement offers were communicated to Cushman
and the Ardens, the Ardens assert that Forsberg did not
obtain approval by them before they were presented to the
Duffys. No settlement was reached at that time.
March 15, 2013, the Ardens, still represented by Cushman,
filed the instant suit against Hartford, asserting bad faith
and other claims. Forsberg was later added as a
defendant. This suit is the subject of our review.
March 19, 2013, the State filed criminal charges against Roff
Arden, which prompted an agreement to suspend temporarily any
work on the Duffy civil case. Based on being added as a
defendant to the suit, Forsberg withdrew as the Ardens'
attorneys from the Duffy lawsuit.
August 2013, all parties participated in a "global
mediation" affecting both cases. Hartford agreed to pay
a settlement of $75, 000 to the Duffys in the Duffy
lawsuit. The Duffy lawsuit, including the
counterclaims, was dismissed. In the case before us, all bad
faith and other claims against Hartford were resolved and
claims not resolved in the mediation were the Ardens'
claims against Forsberg. The Ardens continue to pursue those
claims based on the assertions that Forsberg breached its
fiduciary duties of disclosure and loyalty by failing to
disclose its relationship with Hartford, and by failing to
communicate and seek consent from the Ardens during
settlement negotiations. Both parties made cross-motions for
summary judgment. The trial court granted Forsberg's
motions, denied the Ardens' motion, and dismissed the
remainder of the Ardens' claims. The court held that
there was no disqualifying conflict of interest and therefore
no breach of fiduciary duty. In addition, it found no support
for recovery of damages for either emotional distress or
attorney fees, which were the remedies sought. The Ardens
appeal, the Court of Appeals, Division Two, affirmed
dismissal of the Ardens' claims. In its opinion, the
court outlined defense counsel's duties under the Rules
of Professional Conduct (RPC) and Tank v. State Farm Fire
and Casualty Co., 105 Wn.2d 381, 715 P.2d 1133 (1986).
Arden, 193 Wn.App. at 744-45. The opinion reasoned
that retained counsel in an ROR case who has a longstanding
relationship with the insurer has no duty to disclose the
relationship to its insured. Regarding settlement
negotiation, the court held that while there may be disputed
facts as to whether Forsberg breached its duty to consult
with the Ardens, there was no evidence that any breach caused
injury and it affirmed the trial court's holding.
briefing before us, the Ardens request that this court
clarify the duties of insurance defense counsel and the
remedies available when those duties are breached. While we
disagree somewhat with the Court of Appeals' discussion
of the reasoning from Tank and the disclosure
requirements under the RPCs, we reach the same
conclusion. Under the ...