Roff And Bobbi Arden, V Forsberg Umlauf, Ps , 193 Wash. App. 731 ( 2016 )

Filed
Washington State
Court of Appeals
Division Two
May 3, 2016
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION II
ROFF ARDEN and BOBBI ARDEN, adult No. 46991-0-II
husband and wife,
Appellants,
v.
FORSBERG & UMLAUF, P.S., a Washington PUBLISHED OPINION
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.
MAXA, J. — Roff and Bobbi Arden appeal the trial court’s summary judgment order
dismissing their claims against Forsberg & Umlauf, PS, and attorneys John Hayes and William
“Chris” Gibson (collectively Forsberg) for breach of fiduciary duties and legal malpractice.
Property and Casualty Insurance Company of Hartford (Hartford), the Ardens’ homeowners’
insurance company, retained Forsberg to defend a lawsuit filed against the Ardens. Hartford
provided the defense under a reservation of its rights to deny coverage for any judgment entered
against the Ardens.
First, the Ardens argue that Forsberg breached its fiduciary duty of loyalty to them by
defending them in a reservation of rights context while also representing Hartford in other cases.
No. 46991-0-II
We hold as a matter of law that Forsberg’s representation of the Ardens while it also represented
Hartford did not create a conflict of interest and that Forsberg had no obligation to notify the
Ardens that they represented Hartford in other cases. We also hold that there is no evidence that
Forsberg breached its duty of disclosure regarding the potential conflicts of interest between
Hartford and the Ardens.
Second, the Ardens argue that Forsberg breached its fiduciary duty of loyalty to them
during settlement negotiations. We hold that (1) as a matter of law, Forsberg had no duty to the
Ardens to persuade Hartford to accept the claimants’ initial settlement offer; (2) there is no
evidence that Forsberg breached a fiduciary duty regarding the Ardens’ interest in a swift
resolution of the lawsuit; (3) a question of fact exists as to whether Forsberg breached its duty to
consult with the Ardens before rejecting settlement demands, but there is no evidence that any
breach injured the Ardens; and (4) even if Forsberg had a duty to consult with the Ardens before
making settlement offers, there is no evidence that Forsberg breached any such duty regarding its
first settlement offer and that the breach of any duty for the second settlement offer injured the
Ardens.
Third, the Ardens argue that Forsberg was negligent in requesting an extension of the
start of settlement negotiations when they had an interest in a prompt settlement. We hold that
there is no evidence that Forsberg was negligent regarding its judgment decision to extend the
start of settlement negotiations.
Accordingly, we affirm the trial court’s grant of summary judgment in favor of Forsberg
on both breach of the fiduciary duty of loyalty and legal negligence and the denial of the Ardens’
summary judgment motions.
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FACTS
The Ardens and Wade and Anne Duffy were neighbors in Shelton. In December 2011,
Roff Arden shot and killed the Duffys’ puppy. He claimed that the shooting occurred after the
puppy and another dog chased him and Bobbi down their driveway. The Mason County
Sheriff’s Office investigated, and referred the investigation to the prosecutor’s office to pursue
animal cruelty charges.
Lawsuit and Tender of Defense to Hartford
The Duffys filed suit against the Ardens in May 2012 after settlement negotiations broke
down. The lawsuit apparently alleged that the Ardens were liable for (1) willful conversion of
the dog, (2) malicious injury, (3) intentional or reckless infliction of emotional distress, and (4)
gross negligence and willful or reckless property damage.1 The Ardens requested insurance
coverage for the lawsuit from Hartford under the liability portion of their homeowners’ insurance
policy. Hartford initially refused to defend the lawsuit based on an intentional act exclusion in
its policy.
In October 2012, the Ardens retained new personal counsel, Jon Cushman. Cushman
demanded that Hartford defend and indemnify the Ardens against the Duffy lawsuit because the
complaint contained some negligence allegations. Hartford agreed to defend the Ardens.
Hartford informed Cushman that it intended to defend under a reservation of its rights to deny
coverage for any judgment, and Cushman stated that he was “ok” with Hartford’s panel counsel2
1
Neither party included a copy of the Duffys’ complaint in the appellate record.
2
“Panel counsel” generally refers to an attorney who is regularly retained by a particular insurer.
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No. 46991-0-II
defending the case. Clerk’s Papers (CP) at 320. Cushman informed the Ardens that Hartford
had agreed to defend but under a reservation of rights, and that he would continue to provide
coverage advice to Arden and to monitor the defense. However, Hartford did not send the
Ardens a letter reserving its rights to deny coverage until January 30, 2013.
Forsberg Representation
Hartford retained Forsberg to represent the Ardens, and Forsberg assigned attorneys
Hayes and Gibson to the case. Hartford was one of Forsberg’s clients, and Hayes was one of the
firm’s partners who regularly worked on Hartford cases. Approximately 30 to 35 percent of
Hayes’s practice involved defending Hartford’s insureds. He also had represented Hartford in
coverage matters. A substantial part of Gibson’s practice involved defending Hartford’s
insureds.
On November 27, 2012, Forsberg sent a letter to the Ardens informing them that Hartford
had retained Forsberg to defend the Duffy lawsuit. The letter stated that Forsberg’s
representation was limited to defending the Ardens in the lawsuit and that Forsberg would not
provide any insurance coverage advice to either Hartford or the Ardens. The letter also stated,
“Unless instructed otherwise, we will assume that any settlement authority or instructions we
receive from the Hartford to settle are given with your consent and will proceed accordingly.”
CP at 427. The letter did not inform the Ardens that Forsberg regularly defended Hartford’s
insureds and had also represented Hartford in coverage matters.
Gibson met with the Ardens in December. At the meeting, Gibson explained that he
expected Hartford to issue a reservation of rights letter and that there could be a coverage
dispute. He further explained that Forsberg’s only role was as the Ardens’ defense attorneys. He
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told the Ardens that his goal was for Hartford to pay full indemnity for the lawsuit despite any
reservation of rights.
Settlement Negotiations
Forsberg served discovery requests on the Duffys in early January 2013. On January 18,
the Duffys made a settlement demand of $55,000 to both Cushman and Forsberg. The deadline
to respond to the demand was January 28. Cushman immediately sent an email to Forsberg
stating that the Ardens would accept the offer provided that Hartford pay the settlement. On
January 22, Cushman also sent Forsberg and Hartford an email stating that the Ardens wanted to
accept the offer provided that Hartford would pay and demanding that Hartford fund the
settlement.
Hartford was not willing to settle the case for $55,000 at that time because it did not have
discovery responses that would have provided documentation regarding the claimed damages
and information about case value. Forsberg emailed Cushman that it had requested an extension
of time to respond to the settlement demand until after the Duffys had responded to discovery
requests. Hartford sent a similar email to Cushman. Forsberg later emailed Cushman and
informed him that the Duffys had agreed to extend the time for responding to their settlement
demand until two weeks after they answered discovery. The new projected settlement deadline
was March 4. Cushman did not object to the extension at that time.
After receiving the Duffys’ discovery responses, Forsberg prepared a detailed litigation
report and case evaluation and provided a draft to Cushman for review before sending it to
Hartford. Forsberg recommended that Hartford attempt to settle the case for up to $35,000.
Cushman sent Forsberg an email with several substantive changes, and concluded, “I bet you can
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No. 46991-0-II
settle the case for the $35,000 you estimate in value.” CP at 693. Cushman did not tell Forsberg
that he thought the value was too low or that he should recommend a higher settlement value to
Hartford.
On March 4, Hartford informed Cushman that it planned to allow the deadline for the
$55,000 demand to expire and then continue negotiations. On March 5, Forsberg informed
Cushman by email that Hartford had given Forsberg settlement authority up to $35,000, and that
they were going to start with an $18,000 offer. Cushman responded, “I hope you succeed. I will
stay out of the loop. Keep me posted by copy on all offers and responses.” CP at 714. Cushman
also told the Ardens that Hartford was going to start with an $18,000 offer. Neither Cushman
nor the Ardens objected to this offer. Roff Arden expected that the parties would negotiate back
and forth and probably get the case settled for $35,000.
Forsberg conveyed an $18,000 settlement offer to the Duffys later on March 5. The
Duffys initially rejected the counteroffer without extending a new offer. However, on March 12
Cushman contacted the Duffys’ attorney directly and asked him to move to a mid-point. The
attorney responded with an email to Forsberg and Cushman offering to settle for $40,000 if
accepted by the end of the day on March 14. On March 14, Hartford informed Cushman that it
would be allowing the $40,000 demand to expire and would make a counteroffer of $25,000. An
hour after Hartford’s email to Cushman, Forsberg communicated the $25,000 offer to the
Duffys’ attorney. Cushman did not object to this offer at the time, but he later argued that
Hartford was acting in bad faith by not accepting the $40,000 demand.
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Later on March 14, the Duffys’ attorney sent an email to Forsberg and Cushman rejecting
the $25,000 offer and stating that no new offers would be made. At that point, negotiations
stopped.
Criminal Charges
On March 13, the Mason County Prosecuting Attorney charged Arden with one count of
first degree animal cruelty with a firearm enhancement. The prosecutor was unaware of the
Duffys’ lawsuit until after he filed the information.
Lawsuit Against Hartford and Forsberg
On March 15, the Ardens filed a lawsuit against Hartford alleging that Hartford had acted
in bad faith in handling their claim. The Ardens then amended their complaint to add Forsberg
and Hayes as defendants and alleged that Forsberg had committed legal malpractice. The
Ardens later filed a second amended complaint adding Gibson as a defendant and asserting a
claim that Forsberg and its attorneys had breached their fiduciary duties.
The Ardens, Hartford, Forsberg, and the Duffys participated in mediation in August
2013. Hartford funded a settlement of the Duffys’ lawsuit against the Ardens, the Duffys agreed
to recommend to the prosecutor that criminal charges not be pursued, and the Ardens dismissed
their claim against Hartford. The only matter not settled was the Ardens’ claims against
Forsberg, Hayes, and Gibson.
Summary Judgment
Both the Ardens and Forsberg filed multiple summary judgment motions regarding the
Ardens’ breach of fiduciary duty and legal negligence claims. The trial court granted summary
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No. 46991-0-II
judgment in favor of Forsberg on all the Ardens’ claims. The trial court denied the Ardens’
summary judgment motions. The Ardens appeal the trial court’s summary judgment orders.
ANALYSIS
A. STANDARD OF REVIEW
We review a trial court’s order granting summary judgment de novo. Lyons v. U.S. Bank
Nat’l Ass’n, 181 Wn.2d 775, 783, 336 P.3d 1142 (2014). We review the evidence in the light
most favorable to the nonmoving party and draw all reasonable inferences in that party’s favor.
Lakey v. Puget Sound Energy, Inc., 176 Wn.2d 909, 922, 296 P.3d 860 (2013).
Summary judgment is appropriate where there is no genuine issue of material fact and the
moving party is entitled to judgment as a matter of law. CR 56(c). “A genuine issue of material
fact exists where reasonable minds could differ on the facts controlling the outcome of the
litigation.” Dowler v. Clover Park Sch. Dist. No. 400, 172 Wn.2d 471, 484, 258 P.3d 676(2011). If reasonable minds can reach only one conclusion on an issue of fact, that issue may be
determined on summary judgment. Failla v. FixtureOne Corp., 181 Wn.2d 642, 649, 336 P.3d
1112 (2014), cert. denied, 135 S. Ct. 1904, (2015).
The moving party bears the initial burden of showing that there is no genuine issue of
material fact. Lee v. Metro Parks Tacoma, 183 Wn. App. 961, 964, 335 P.3d 1014 (2014). A
moving defendant can meet this burden by showing that there is an absence of evidence to
support the plaintiff's case. Id. The burden then shifts to the plaintiff to come forward with
sufficient evidence to establish the existence of each element of the plaintiff's case. Id. If the
plaintiff does not submit such evidence, summary judgment is appropriate. Id.8
No. 46991-0-II
B. ATTORNEY’S FIDUCIARY DUTIES – RESERVATION OF RIGHTS DEFENSE
1. General Principles
An attorney owes fiduciary duties to his or her client. VersusLaw, Inc. v. Stoel Rives,
LLP, 127 Wn. App. 309, 333, 111 P.3d 866 (2005). Breach of a fiduciary duty imposes liability
in tort. Micro Enhancement Int’l, Inc. v. Coopers & Lybrand, LLP, 110 Wn. App. 412, 433, 40
P.3d 1206 (2002). The plaintiff must prove (1) the existence of a fiduciary duty, (2) a breach of
that fiduciary duty, (3) resulting injury, and (4) that the breach of duty proximately caused the
injury. Id. at 433-34.
The Rules of Professional Conduct (RPC) generally outline an attorney’s fiduciary duties.
See Eriks v. Denver, 118 Wn.2d 451, 457, 824 P.2d 1207 (1992); Cotton v. Kronenberg, 111
Wn. App. 258, 265-66, 44 P.3d 878 (2002). Whether a fiduciary duty exists under the RPCs and
whether an attorney has breached a fiduciary duty are questions of law. See Eriks, 118 Wn.2d at
457-58.
2. Duty of Loyalty Under the RPCs
The Ardens allege that Forsberg breached its fiduciary duty of loyalty to them. The
RPCs contain two rules addressing the duty of loyalty that potentially apply when an insurer
retains an attorney to defend its insured. First, RPC 1.7 provides:
(a) Except as provided in paragraph (b), a lawyer shall not represent a client if
the representation involves a concurrent conflict of interest. A concurrent conflict
of interest exists if:
(1) the representation of one client will be directly adverse to another client; or
(2) there is a significant risk that the representation of one or more clients will be
materially limited by the lawyer’s responsibilities to another client, a former client
or a third person or by a personal interest of the lawyer.
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No. 46991-0-II
RPC 1.7(b) states that if a concurrent conflict of interest exists, a lawyer may represent a client if
“the lawyer reasonably believes that the lawyer will be able to provide competent and diligent
representation to each affected client” and “each affected client gives informed consent,
confirmed in writing.” RPC 1.7(b)(1), (4).
Second, RPC 5.4(c) states:
A lawyer shall not permit a person who recommends, employs, or pays the lawyer
to render legal services for another to direct or regulate the lawyer’s professional
judgment in rendering such legal services.
See also RPC 1.8(f)(2) (“A lawyer shall not accept compensation for representing a client from
one other than the client unless: . . . (2) there is no interference with the lawyer’s independence
of professional judgment or with the client-lawyer relationship”).
3. Defense Attorney Duties under Tank
In Tank v. State Farm Fire & Casualty Co., the Supreme Court adopted specific criteria
regarding the fiduciary duty of loyalty for insurer-retained attorneys defending insureds when the
insurer is providing a defense under a reservation of rights to deny coverage. 105 Wn.2d 381,
388, 715 P.2d 1133 (1986). First, the court emphasized that a defense attorney owes a duty of
loyalty to the insured/client, not to the insurer, consistent with RPC 5.4(c). Id.In a reservation of rights defense, RPC 5.4(c) demands that counsel understand that
he or she represents only the insured, not the company. . . . ‘[T]he standards of the
legal profession require undeviating fidelity of the lawyer to his client. No
exceptions can be tolerated.
Id. (quoting Van Dyke v. White, 55 Wn.2d 601, 613, 349 P.2d 430 (1960).
Second, a defense attorney owes a “duty of full and ongoing disclosure to the insured.”
Tank, 105 Wn.2d at 388. This duty includes three aspects: (1) “potential conflicts of interest
between insurer and insured must be fully disclosed and resolved in favor of the insured,” and the
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dictates of RPC 1.7 must be strictly followed; (2) “all information relevant to the insured’s defense,
including a realistic and periodic assessment of the insured’s chances to win or lose the pending
lawsuit, must be communicated to the insured”; and (3) “all offers of settlement must be disclosed
to the insured as those offers are presented” and “the insured must be fully apprised of all activity
involving settlement, whether the settlement offers or rejections come from the injured party or
the insurance company.” Id. at 388-89.3
C. DEFENSE ATTORNEY’S RELATIONSHIP WITH INSURER
The Ardens argue that Forsberg breached its fiduciary duty of loyalty to them by
representing them in the Duffy lawsuit despite its long-standing relationship with Hartford that
included representing Hartford in coverage cases. The Ardens claim that this relationship created
a conflict of interest for Forsberg as a matter of law because Hartford was defending under a
reservation of rights to deny coverage. We disagree.
1. Expert Disagreement
Whether Forsberg’s representation of Hartford in coverage cases precludes Forsberg from
defending Hartford’s insured in a reservation of rights case is a question of first impression in
Washington. The parties submitted expert declarations that disagreed on this issue. The Ardens’
expert was John Straight, a Seattle University law professor, who stated that Forsberg’s
representation of Hartford in coverage cases and its long-time attorney-client relationship with
Hartford created a nonwaivable conflict of interest. Forsberg’s expert was Jeffery Tilden, an
3
The Ardens also argue that the right to a defense is a valuable asset, and that defense counsel
becomes a “trustee” over the insurance defense asset and owes the insured the duties of a trustee.
However, they cite no authority to support this novel argument. We decline to hold that
Forsberg somehow became a trustee by undertaking a reservation of rights defense.
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No. 46991-0-II
experienced insurance coverage attorney, who stated that it is a reasonable, common practice for
attorneys to represent an insurer in coverage matters and also represent that insurer’s insureds in
other matters.
Because the breach of a fiduciary duty is a question of law, the trial court – and an appellate
court on review – are free to disregard expert opinions regarding whether an attorney has breached
a fiduciary duty. Eriks, 118 Wn.2d at 458. Therefore, we are not bound by either opinion. Id.Instead, we acknowledge that there is a difference of opinion among experts on this issue.
Thomas Harris, a Washington insurance law commentator, stated in the third edition of
his treatise that an insurer violates RPC 1.7 when it retains an attorney who represents the insurer
as a current client to also represent its insured. THOMAS V. HARRIS, WASHINGTON INSURANCE
LAW §11.02, at 11-3 to 11-4 (3d ed. 2010). However, in his 2015 cumulative supplement Harris
deleted this statement, instead noting the difference of opinions on this issue. HARRIS, §11.02, at
27-28 (Supp. 2015).4 In the supplement, Harris does not support either position.
To resolve the legal issue of whether Forsberg’s representation of Hartford precluded
Forsberg from representing the Ardens in a reservation of right context, we analyze RPC 1.7 and
the Tank guidelines. We conclude that an attorney who represents an insurer in coverage cases is
not automatically prohibited from representing that insurer’s insured when the insurer reserves
its right to deny coverage.
4
The Ardens cite to WILLIAM T. BARKER AND CHARLES SILVER, PROFESSIONAL
RESPONSIBILITIES OF DEFENSE COUNSEL (2014) and materials Barker prepared for an American
Bar Association seminar. Because these materials do not specifically address Washington law,
we do not find them persuasive.
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2. Conflict of Interest Under RPC 1.7
The Ardens argue that an attorney who represents an insurer has a conflict of interest
under RPC 1.7 when representing that insurer’s insured in a reservation of rights case. RPC
1.7(a) states that a concurrent conflict of interest exists only if (1) the representation of one client
will be directly adverse to another client, or (2) there is a significant risk that the representation
of one client will be materially limited by the attorney’s responsibility to another client. Neither
situation exists here.
First, Hartford’s interests were not directly adverse to the Ardens’ interests with regard to
Forsberg’s defense of the Duffy lawsuit. Hartford and the Ardens did have adverse interests with
regard to coverage issues, but Forsberg made it clear that it did not represent either Hartford or
the Ardens on those issues. Hartford’s interests and the Ardens’ interests were aligned on the
defense aspect of the claim. Both were interested in winning the case or settling it.
Second, as long as the defense attorney follows the criteria outlined in Tank, there is not a
significant risk that the attorney’s representation of the insured will be materially limited by the
attorney’s representation of the insurer in other cases. A defense attorney handling a reservation
of rights case knows that, under Tank, he or she represents only the insured, not the insurer, and
owes a duty of loyalty to the insured that has no exceptions. Tank, 105 Wn.2d at 388. Because
the Tank criteria form the foundation of any reservation of rights defense, a conflict of interest
does not automatically arise under RPC 1.7(a)(2) in that context.5
5
Our holding applies only to the argument that a conflict of interest automatically exists when an
attorney defending under a reservation of rights also represents an insurer. A defense attorney
still is subject to liability for breach of fiduciary duty under RPC 1.7(a)(2) if the facts actually
show that the attorney’s representation of the insured will be materially limited by the attorney’s
responsibilities to or relationship with the insurer.
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3. Tank Rule
The Ardens advocate the adoption of a rule requiring an insurer defending under
reservation of rights to retain an “independent” defense attorney who has no connection at all to
that insurer. The California Court of Appeals adopted a similar rule shortly before our Supreme
Court decided Tank. See San Diego Navy Fed. Credit Union v. Cumis Ins. Society, Inc., 162 Cal.
App. 3d 358, 208 Cal. Rptr. 494 (1984). In Cumis, the California court reasoned that an attorney
retained to undertake a reservation of rights defense would represent both the insurer and the
insured and therefore would have an irreconcilable conflict of interest. Id. at 499-506. As a
result, the court held that in the absence of the insured’s express consent to representation by an
attorney connected to the insurer, an insurer defending under a reservation of rights must pay the
reasonable cost of hiring independent counsel to defend the insured. Id. at 506.
In Tank, the Supreme Court implicitly rejected the Cumis rule. Instead of requiring
insurers to retain independent counsel for a reservation of rights defense, the court emphasized
that (1) insurers owed an enhanced obligation of fairness to insureds in the reservation of rights
context, and (2) defense attorneys were required to follow specific criteria that centered on the
recognition that only the insured was the attorney’s client. Tank, 105 Wn.2d at 383, 387-88. In
essence, the court ruled that, as long as defense attorneys satisfy the specific Tank criteria, an
insurer-retained attorney does not violate his or her duty of loyalty to an insured.
This court addressed whether an attorney defending a reservation of rights case was
required to be independent of the insurer in Johnson v. Continental Casualty Co., 57 Wn. App.
359, 788 P.2d 598 (1990). In Johnson, the insured argued that “when an insurer defends under a
reservation of rights, a conflict of interest automatically arises requiring that the insurer pay for
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No. 46991-0-II
independent counsel chosen by the insured.” Id. at 361. The court noted that the insured was
relying on the Cumis case. Id. at 361 n.2.
This court expressly rejected the insured’s argument that a conflict of interest between
the insurer and the insured automatically arises when the insurer is defending under a reservation
of rights. Citing Tank’s imposition of enhanced obligations of fairness on the insurer, the court
stated that “no actual conflict of interest necessarily exists in a reservation of rights defense.” Id
at 361. The court summarily rejected the insured’s assertion that the insurer’s refusal to provide
coverage for certain claims “creates a conflict of interest for the attorney selected by the [insurer]
to defend against the above referenced claims.” Id. at 362. The court concluded:
In Washington, there is simply no presumption, as Johnson urges, that a reservation
of rights situation creates an automatic conflict of interest. Therefore, the insurer
has no obligation before the fact to pay for its insured’s independently hired
counsel.
Id. at 363.
Consistent with Tank and Johnson, Hartford’s retention of Forsberg to defend the Ardens
under a reservation of rights did not create a conflict of interest even though Forsberg
represented Hartford in other cases. Accordingly, we hold as a matter of law that Forsberg did
not breach its fiduciary duty of loyalty by undertaking the reservation of rights defense of the
Ardens.6
6
Our holding does not insulate defense attorneys from liability for breach of duty of loyalty.
The Supreme Court in Tank suggested that if an attorney defending a reservation of rights case
failed to comply with the specific criteria outlined in that case, that attorney would be subject to
liability. 105 Wn.2d at 387-88. This court made the same observation in Johnson. 57 Wn. App.
at 363. We hold only that a defense attorney’s relationship with the insurer does not
automatically prohibit that attorney from undertaking a reservation of rights defense.
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D. DEFENSE ATTORNEY’S DISCLOSURE REQUIREMENTS
The Ardens argue that Forsberg breached its fiduciary duty of loyalty by failing to give
them notice of its long-standing relationship with Hartford and of potential conflicts of interest
arising from Hartford’s reservation of rights. We disagree.
1. Disclosure of Attorney’s Relationship with Insurer
The Ardens claim that Forsberg had a duty to inform them of its relationship with
Hartford. Under RAP 1.7(b)(4), if a concurrent conflict of interest exists the attorney must
obtain informed consent for continued representation, which necessarily would require
disclosure of the conflict of interest. However, as discussed above, an attorney’s undertaking of
a reservation of rights defense even when the attorney represents the insurer in other cases does
not automatically create a conflict of interest under RPC 1.7(a). Therefore, Forsberg had no
obligation under RPC 1.7 to disclose to the Ardens its relationship with Hartford.7
Further, nothing in Tank requires a defense attorney to disclose his or her relationship
with the insurer to the insured. As discussed below, Tank requires a defense attorney to follow
the dictates of RPC 1.7, disclosing any conflict of interest between the insured and the insurer
defending under a reservation of rights. 105 Wn.2d at 388. But neither RPC 1.7 nor Tank
impose a requirement that a defense attorney disclose its relationship with that insurer.
7
The Ardens cite In re Disciplinary Proceeding Against Marshall, in which the Supreme Court
suggested that consultation and consent is required under RPC 1.7(b) any time a potential
conflict of interest exists. 160 Wn.2d 317, 336, 157 P.3d 859 (2007). However, in Marshall the
attorney represented multiple plaintiffs in the same discrimination lawsuit. Id. at 324. Under
Tank the law is clear that Forsberg’s only client in the Duffy lawsuit was the Ardens. 105 Wn.2d
at 388.
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The better practice for attorneys handling a reservation of rights defense may be to
inform their clients if they have a long-standing relationship with the insurer and represent the
insurer in other cases. But we hold that, as a matter of law, Forsberg had no fiduciary duty to
provide such notice to the Ardens.
2. Disclosure of Reservation of Rights Process
One requirement for attorneys handling a reservation of rights defense is that “potential
conflicts of interest between insurer and insured must be fully disclosed and resolved in favor of
the insured.” Tank, 105 Wn.2d at 388. Further, the attorney generally must explain the
reservation of rights process; i.e., that the insurer could refuse to indemnify the insured even
though it was providing a defense and that the attorney represents only the insured and not the
insurer.
Forsberg’s initial representation letter did not completely fulfill Forsberg’s duty of
disclosure under Tank. The letter explained that Forsberg was not representing either Hartford or
the Ardens with regard to coverage but it did not explain the ramifications of the reservation of
rights defense.8 However, Gibson testified that he met with the Ardens in December and
discussed the relationship between Hartford, Forsberg and the Ardens.
In the meeting that I had with them early in the case I explained [the
insurer/attorney/insured relationship] as best I could knowing that they’re not
sophisticated, but I had to allay I think some presumed concerns that almost all of
my clients have in insurance defense situations. They want to know who I’m
working for and they want to know who’s [sic] interest I’m protecting, and I explain
the relationship and how in a [Tank] case my duties are solely to you. . . . I
specifically said that, that my practice is to try to get the insurance company to pay
8
At the time Forsberg sent the November 27, 2012 letter, Hartford had not yet issued a
reservation of rights letter to the Ardens. Forsberg’s failure to address reservation of rights
issues in the retention letter may be more excusable than if a reservation of rights letter already
had been issued.
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No. 46991-0-II
everything and have you not pay a penny out of your pocket, even in a reservation
of rights case.
CP at 173.
The record shows that Gibson discussed with the Ardens the parameters and scope of
Forsberg’s defense of them under a reservation of rights. Nothing in the record indicates that
Gibson failed to explain the reservation of rights process to them. Further, the Ardens had
personal counsel who was engaged in the reservation of rights process and who presumably
provided the Ardens with information and legal advice about that process. Therefore, we hold
that there is no evidence that Forsberg breached its duty of disclosure under Tank regarding the
potential conflicts of interest between Hartford and the Ardens.
E. DEFENSE ATTORNEY’S DUTIES IN SETTLEMENT NEGOTIATIONS
The Ardens argue that Forsberg breached its fiduciary duty of loyalty to them by placing
Hartford’s interests above theirs and by failing to consult with them before rejecting the Duffys’
settlement demands and making counteroffers. We hold that summary judgment was proper on
these claims.
1. Insured’s Involvement in Settlement
Most automobile and homeowners’ insurance policies provide the insurer with control
over settlement. But in the reservation of rights context, there are two exceptions to the insurer’s
right to control settlement. First, the Supreme Court in Tank recognized that the insured has the
right to decide whether to settle a lawsuit defended under a reservation of rights. 105 Wn.2d at
389. Although unstated, the court clearly was referring to the situation where the insured agrees
to pay the settlement amount. See id. (stating that “[i]n a reservation of rights defense, it is the
insured who may pay any judgment or settlement”). Therefore, if the insurer defends under a
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reservation of rights, the insured under certain circumstances has the ability to settle the case at
his or her own expense without defeating coverage even when the insurer does not consent. See
Mut. of Enumclaw Ins. Co. v. T&G Constr., Inc., 165 Wn.2d 255, 268-69, 199 P.3d 376 (2008).
Second, under certain circumstances the insured can enter into an agreement with the
plaintiff to execute a stipulated judgment. This type of agreement usually involves an
assignment of the insured’s bad faith claims against the insurer in exchange for the claimant’s
covenant not to execute on the judgment against the insured. See, e.g., Bird v. Best Plumbing
Grp., LLC, 175 Wn.2d 756, 764-65, 287 P.3d 551 (2012).
2. Persuading Hartford to Accept Settlement
The Ardens suggest that Forsberg breached its fiduciary duty of loyalty to them by not
attempting to persuade Hartford to fund the $55,000 settlement demand as the Ardens requested.
We disagree.
First, a defense attorney clearly has an obligation to communicate an insured’s request to
settle to the insurer. Tank, 105 Wn.2d at 388-89. But the Ardens provide no authority to support
imposing a duty on the defense attorney to attempt to persuade the insurer to settle the case.
Such a duty would be inconsistent with the defense attorney’s role in a reservation of rights
defense. When coverage is disputed, an insurer’s decision to settle necessarily involves an
evaluation of the strength of its coverage defenses. Imposing a duty on defense counsel to
attempt to persuade an insurer to settle would require that attorney either to argue the insured’s
position on coverage or advise the insurer on coverage issues, both of which would give rise to
actual conflicts of interest.
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Second, when as here the insured has personal counsel who is actively involved in the
case, there is no reason for defense counsel to become involved in persuading the insurer to
settle. Personal counsel is in the best position to advocate for settlement with the insurer.
Cushman did so here, telling Hartford, “Let me be perfectly clear. Arden’s [sic] want to accept
this offer provided it is paid by carrier. Arden’s [sic] demand the Hartford fund this settlement
and relieve them [of] all exposure to liability.” CP at 258. Later, Cushman vigorously argued
that Hartford was acting in bad faith by not settling the case for $40,000.
We decline to impose a fiduciary duty on Forsberg to attempt to persuade Hartford to
settle for an amount the Ardens demanded. The defense attorney’s duty is to give a fair
evaluation of the liability and damages aspects of the case without regard to any coverage issues.
See Tank, 105 Wn.2d at 388-89. Forsberg met that duty here.
3. Conflict of Interest Regarding Quick Settlement
The Ardens argue that Forsberg breached its fiduciary duty of loyalty to them because it
failed to recognize the conflict between their interest in swiftly resolving the case and Hartford’s
deliberate negotiation strategy. We disagree because there is no evidence that there was such a
conflict.
The Ardens assert that they were interested in a quick settlement of the Duffy lawsuit
because of the pending decision on criminal charges and Roff Arden’s problems with depression
and post-traumatic stress disorder (PTSD). The Ardens claim that Hartford’s settlement strategy
was inconsistent with this interest. But there is no evidence that Hartford disagreed with seeking
a quick settlement or attempted to slow down settlement discussions. Hartford did let the
$55,000 demand expire, but then made a counteroffer the next day, March 5. When the Duffys
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lowered their demand to $40,000 on March 12, Hartford responded with another offer two days
later. Negotiations then broke down. The speed of these negotiations – multiple offers and
counteroffers in less than 10 days – showed that Hartford, like the Ardens, was interested in a
prompt resolution.
The start of negotiations was delayed approximately two months because Forsberg and
Hartford were waiting for the Duffys’ discovery responses, which were needed to evaluate the
claim. However, as discussed below, Forsberg’s request for an extension of time to respond to
the $55,000 settlement demand was a reasonable judgment decision designed to further the
Ardens’ interest in having Hartford fund any settlement.
We hold that there is no evidence that Forsberg breached any fiduciary duty relating to
the Ardens’ interest in a quick settlement of the Duffy lawsuit.
4. Conferring with the Ardens Regarding Settlement Offers
As stated above, Tank requires defense counsel to keep the insured fully apprised of all
activity involving settlement, including all settlement offers or rejections of offers from either the
injured party or the insurer. 105 Wn.2d at 388-89. Here, there is no question that Forsberg
informed the Ardens – through Cushman – of all settlement developments. However, the Ardens
argue that Forsberg breached its fiduciary duty of loyalty because it did not consult with them
before rejecting Duffys’ settlement demands or making counteroffers. We hold that summary
judgment was proper on these issues.
a. Rejecting Demands
As noted above, when the insurer defends under a reservation of rights the insured has the
ability, under certain circumstances, to settle the case without the insurer’s involvement or
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consent. This means that when the claimant makes a settlement demand, defense counsel must
consult with the insured before that demand is rejected or allowed to expire. See Tank, 105
Wn.2d at 388-89. Otherwise, it may be difficult for the insured to exercise its settlement rights.
Here, Forsberg did not expressly consult with the Ardens or Cushman before rejecting the
Duffys’ two settlement demands. Forsberg notified Cushman that it would reject the demands,
but Forsberg never inquired whether the Ardens were interested in settling the case without
Hartford’s involvement. On the other hand, Forsberg’s initial representation letter had stated,
“Unless instructed otherwise, we will assume that any settlement authority or instructions we
receive from The Hartford to settle the claims against you in this lawsuit are given with your
consent and will proceed accordingly.” CP at 427. And the Ardens had clearly stated that they
were interested in settlement only if Hartford funded any settlement agreement. This competing
evidence arguably created a question of fact as to whether Forsberg breached its duty to consult
with the Ardens.
However, an attorney can be liable for a breach of fiduciary duty only if the breach
caused some injury. See Micro Enhancement, 110 Wn. App. at 433-34. Here, there is no
question of fact regarding whether this potential breach of duty injured the Ardens. There is no
evidence in the record suggesting that if Forsberg had consulted with the Ardens, they would
have been willing to fund the settlement themselves or otherwise negotiate a separate settlement
with the Duffys. The only evidence is that the Ardens and Cushman were adamant that Hartford
must fund any settlement. Therefore, as a matter of law Forsberg cannot be liable for its failure
to confer with the Ardens before rejecting the settlement demands.
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b. Making Counteroffers
The Ardens argue that Forsberg was required to consult with them before making
counteroffers. They claim that Forsberg breached its fiduciary duty of loyalty to them by
carrying out Hartford’s instructions regarding settlement offers without considering their
interests. We assume without deciding that Forsberg had a duty to consult with the Ardens
regarding settlement strategy. However, we hold that the trial court correctly granted summary
judgment in favor of Forsberg because the evidence shows that Forsberg did not breach any such
duty regarding the $18,000 offer and that any breach regarding the $25,000 offer did not injure
the Ardens.
The evidence is undisputed that Forsberg did consult with Cushman before making the
$18,000 counteroffer. After Hartford gave Forsberg authority to settle for $35,000, Forsberg
informed Cushman before communicating any offer to the Duffys that it was starting with an
$18,000 offer. This consultation gave Cushman the opportunity to provide input on this
decision. Cushman did not object to or disagree with Forsberg’s approach. In fact, he told
Forsberg that he hoped Forsberg would succeed and that he would stay out of the loop on
settlement negotiations. Cushman also told the Ardens about the offer, and rather than objecting
Roff Arden noted that this offer was just the starting point and expected the parties to negotiate
back and forth. Therefore, there is no genuine issue of fact that Forsberg consulted with the
Ardens before making the $18,000 offer.
For the $25,000 counteroffer, Forsberg gave Cushman some advance notice before
making the offer an hour later. Cushman did not respond, so there was no actual discussion
about the new counteroffer. But again, Cushman did not disagree with or object to this offer
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even after the offer was made. Cushman’s objection was not to the amount of the $25,000
counteroffer, but with Hartford’s refusal to accept the $40,000 demand.
Even if Forsberg breached some duty to consult with the Ardens regarding settlement
strategy, there is no evidence that that this breach injured the Ardens. The evidence shows that
Hartford was not willing to pay more than $35,000 to settle the case and that the Duffys’ were
not willing to settle for any amount less than $40,000. As a result, even if Forsberg had
consulted with the Ardens and had devised a different settlement strategy – or simply
immediately offered $35,000 – there is no indication in the record that the case would have
settled.
We hold that Forsberg was entitled to summary judgment on the alleged breach of its
fiduciary duty of loyalty regarding the failure to consult with the Ardens before rejecting
settlement demands and making counteroffers.
F. LEGAL NEGLIGENCE – SETTLEMENT NEGOTIATIONS
The Ardens argue that Forsberg was negligent in not attempting to settle the Duffy
lawsuit quickly in order to minimize Roff Arden’s potential exposure to criminal charges and to
avoid exacerbating his depression and PTSD. We hold that there is no evidence that Forsberg
was negligent in making a judgment decision on extending the time for settlement negotiations.
1. Legal Principles
To establish a claim of legal negligence, the plaintiff must prove four elements:
(1) The existence of an attorney-client relationship which gives rise to a duty of
care on the part of the attorney to the client; (2) an act or omission by the attorney
in breach of the duty of care; (3) damage to the client; and (4) proximate causation
between the attorney’s breach of the duty and the damage incurred.
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Clark County Fire Dist. No. 5 v. Bullivant Houser Bailey PC, 180 Wn. App. 689, 700-01, 324
P.3d 743 (2014) (quoting Hizey v. Carpenter, 119 Wn.2d 251, 260-61, 830 P.2d 646 (1992)). An
attorney satisfies the duty of care if he or she exercises “ ‘the degree of care, skill, diligence, and
knowledge commonly possessed and exercised by a reasonable, careful, and prudent lawyer in
the practice of law’ in the state of Washington.” Clark County Fire, 180 Wn. App. at 701
(quoting Hizey, 119 Wn.2d at 261).
Under the attorney judgment rule,
an attorney cannot be liable for making an allegedly erroneous decision involving
honest, good faith judgment if (1) that decision was within the range of reasonable
alternatives from the perspective of a reasonable, careful and prudent attorney in
Washington; and (2) in making that judgment decision the attorney exercised
reasonable care.
Clark County Fire, 180 Wn. App. at 704. “Merely providing an expert opinion that the judgment
decision was erroneous or that the attorney should have made a different decision is not enough;
the expert must do more than simply disagree with the attorney’s decision.” Id. at 706.
2. Extending the Time for Settlement
The Ardens argue that they had an interest in a quick settlement of the Duffy lawsuit
because of the pending decision on criminal charges and Roff Arden’s depression and PTSD and
that Forsberg committed legal malpractice by disregarding this interest. The Ardens appear to be
referring to Forsberg’s decision to obtain an extension of time to respond to the Duffys’ initial
$55,000 settlement demand when the Ardens had demanded that Hartford immediately agree to
settle for that amount. We disagree.9
9
The trial court ruled that these circumstances created a question of fact regarding breach of
duty, but that any breach caused no recoverable damages. Because our review is de novo, we are
not bound by the trial court’s ruling on breach of duty. And we can affirm on any basis
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We assume, without deciding, that an attorney representing an insured in a reservation of
rights case has an obligation to consider the insured’s “personal” interests, even though they may
not directly affect the merits of the case. Under Tank, only the insured is the defense attorney’s
client, and a defense attorney arguably cannot disregard his or her client’s interests. However, a
client may have many, sometimes competing, interests that the attorney must consider in the
exercise of his or her professional judgment in defending the case. Under the attorney judgment
rule, the question is whether an attorney’s particular judgment decision is within the range of
reasonable alternatives or whether the attorney was negligent during the decision-making
process. Clark County Fire, 180 Wn. App. at 704.
Here, the Ardens had an interest in the prompt settlement of the case. However, they
were not willing to settle unless Hartford funded the settlement. Therefore, the Ardens’
predominant interest was having Hartford fund any settlement. When the Duffys made a
settlement demand before providing their discovery responses, the Ardens’ two interests
conflicted. Without discovery responses, Hartford did not have enough information to evaluate
the settlement demand. Therefore, without an extension of time there was no possibility that
Hartford would agree to fund the $55,000 settlement demand.
The evidence shows that Forsberg made a judgment decision about the best way to obtain
a settlement of the Duffy lawsuit with Hartford funding that settlement. Forsberg determined
that the best strategy was to obtain an extension of time for responding to the Duffys’ settlement
demand until after Hartford had enough information to determine the settlement value of the
presented in the pleadings and record. Wash. State Commc’n Access Project v. Regal Cinemas,
Inc., 173 Wn. App. 174, 206-07, 293 P.3d 413 (2013).
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claim. The Ardens presented no evidence that this decision was outside the range of reasonable
alternatives from the perspective of a reasonable, careful, and prudent attorney in Washington or
that Forsberg somehow failed to exercise reasonable care in making that judgment decision.
Accordingly, we hold that there is no evidence that Forsberg was negligent in delaying the
beginning of settlement negotiations.
CONCLUSION
We affirm the trial court’s grant of summary judgment in favor of Forsberg on both
breach of the fiduciary duty of loyalty and legal negligence and the trial court’s denial of the
Ardens’ summary judgment motions.
MAXA, A.C.J.
We concur:
MELNICK, J.
SUTTON, J.
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