Arden v. Forsberg & Umlauf, PS

• Court: Washington Supreme Court
• Decided: September 14, 2017
• Docket: 93207-7
• Status: Published

Opinion

This opinion was filed for record rn-E IN CLENK® OFFICE ■HBE couFn; ffiME OF wAafiHeroM 1 M7E__SEMji_|OI? !' '^rkAA 1/iaAAA -f * ^J ' CHIEFJUSTTCB SUSAN L CARLSON SUPREME COURT CLERK IN THE SUPREME COURT OF THE STATE OF WASHINGTON

ROFF ARDEN and BOBBI ARDBN, adult husband and wife, No. 93207-7 Petitioners,

En Banc

FORSBERG & UMLAUF, P.S., a Washington State professional services corporation; JOHN ELAYES 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 DEFENDANTSIthrough V,

Respondents. SEP 1 h m Filed

JOHNSON, J.—This 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

^ The Court of Appeals and the parties in their briefing characterized the issue as involving a defense provided under a reservation of rights. As discussed herein, this is not entirely accurate. Arden v. Forsberg & Umlauf, P.S., No. 93207-7

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.

The Court of Appeals affirmed the trial court's summary judgment dismissal

and held that under the facts ofthis 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.

Facts and Procedural History

Roff 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 Arden v. Forsberg & Umlauf P.S., No. 93207-7

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 & UmlaufPS 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.

Although 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 & UmlaufPS 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.

Procedurally, 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 Arden v. Forsberg & Umlauf, P.S.,'Mo. 93207-7

understood that the Ardens' position was that Hartford pay any settlement and that

the Ardens contribute nothing.

Thereafter, 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 ofthe 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.

On 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.

On 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 fiind the settlement. On March Arden v. Forsberg & Umlauf, P.S., No. 93207-7

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.

On 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.

On 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.

In 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 dismissed.

^ No copy ofthis complaint was included in the record in this case.

^ The Duffys agreed to recommend to the prosecutor that criminal charges not be pursued, and Roff Arden obtained a diversion in lieu of criminal prosecution. Arden v. Forsberg & Umlauf, P.S., No. 93207-7

The 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 ofthe 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

appealed.

On appeal, the Court of Appeals, Division Two, affirmed dismissal ofthe

Ardens' claims. In its opinion, the court outlined defense counsel's duties under

the Rules ofProfessional 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 long

standing 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, Arden v. Forsberg & Umlauf, P.S"., No. 93207-7

there was no evidence that any breach caused injury and it affirmed the trial court's

holding.

In the 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 facts of this case, the Ardens fail to identify any

recoverable damages caused by the alleged breaches.

Analysis

In a tort action against attorneys that alleges legal malpractice and breach of

a fiduciary duty of loyalty during the representation, the plaintiff must allege and

identify the source ofthe duty, that a breach occurred resulting in injury, and that

the breach proximately caused the injury. The existence of a duty is a question of

law, as is the question of whether an attorney's conduct violates the Rules of

Professional Conduct. See generally Eriks v. Denver, 118 Wn.2d 451, 824 P.2d

1207(1992).

^ Four amici briefs were filed in this case by the Washington State Association for Justice Foundation, the Associated General Contractors of Washington, the Washington Defense Trial Lawyers, and the Federation of Defense and Corporate Counsel. Arden v. Forsberg & Umlauf P.S., No. 93207-7

Here, the Court of Appeals and the parties in their briefings characterized the

issue as involving a defense provided under an ROR,citing Tank. The record does

not entirely support that approach. Tank involved a suit brought against an

insurance company by an insured where the insurance company provided the

defense attorneys, while denying the claim was covered under the policy, and

reserved its right to contest coverage. The underlying case proceeded to trial, and

judgment was entered against the insured. The claim itself was found to be

excluded from coverage under the policy. The plaintiff. Tank, argued that State

Farm failed to make reasonable efforts to settle the underlying suit and that State

Farm subordinated Tank's interests to its own by structuring a defense that would

absolve State Farm of liability.

Tank differs from the situation presented here in several respects. First, Tank

involved a situation where at the outset ofthe case. State Farm provided a defense

under an ROR to contest coverage. The opinion expressed concerns based on the

inherent conflict in those circumstances between the insured's interests and the

interests ofthe insurer. Here, Hartford initially did not issue an ROR,instead

issuing the ROR later during the representation.

Second,in Tank,the court held that under a true ROR,the insured must decide

whether to settle the lawsuit because it is the insured who may pay any judgment or Arden v. Forsberg & Umlauf P.S., No. 93207-7

settlement. Because ofthe insured's potential liability, the court detailed specific

duties ofinsurance companies and defense counsel.^ The court held that State Farm

fully investigated the incident, retained separate counsel to represent the company and

separate counsel for Tank, and fully informed Tank of all settlement activity. The

court also held that there was no evidence to suggest that the company engaged in

actions that demonstrated greater concern for its own interests than for Tank's. In the

^ "First, the company must thoroughly investigate the cause of the insured's accident and the nature and severity of the plaintiffs injuries. Second, it must retain competent defense counsel for the insured. Both retained defense counsel and the insurer must understand that only the insured is the client. Third, the company has the responsibility for fully informing the insured not only of the reservation of rights defense itself.but of all developments relevant to his policy coverage and the progress of his lawsuit. Information regarding progress of the lawsuit includes disclosure of all settlement offers made by the company. Finally, an insurance company must refrain from engaging in any action which would demonstrate a greater concern for the insurer's monetary interest than for the insured's financial risk. "In addition to the above specific criteria to be met by the company, defense counsel retained by insurers to defend insureds under a reservation of rights must meet distinct criteria as well. First, it is evident that such attorneys owe a duty of loyalty to their clients. Rules of Professional Conduct 5.4(c) prohibits a lawyer, employed by a party to represent a third party, from allowing the employer to influence his or her professional judgment. In a reservation of rights defense, RFC 5.4(c) demands that counsel understand that he or she represents only the insured, not the company. As stated by the court in Van Dyke v. White, 55 Wn.2d 601, 613, 349 P.2d 430(1960),'[t]he standards ofthe legal profession require undeviating fidelity ofthe lawyer to his client. No exceptions can be tolerated.' "Second, defense counsel owes a duty of full and ongoing disclosure to the insured. This duty of disclosure has three aspects. First, potential conflicts of interest between insurer and insured must be fully disclosed and resolved in favor ofthe insured. The dictates of RPC 1.7, which address conflicts of interest such as this, must be strictly followed. Second, all information relevant to the insured's defense, including a realistic and periodic assessment ofthe insured's chances to win or lose the pending lawsuit, must be communicated to the insured. Finally, all offers of settlement must be disclosed to the insured as those offers are presented. In a reservation of rights defense, it is the insured who may pay any judgment or settlement. Therefore, it is the insured who must make the ultimate choice regarding settlement. In order to make an informed decision in this regard, 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." Tank, 105 Wn.2d at 388-89(alteration in original). Arden v. Forsberg & Umlauf, P.S., No. 93207-7

end, Tank decided to take the case to trial and the court found that Tank had

committed an intentional tort, which absolved State Farm ofliability. Because Tank

made a fully informed decision not to settle the lawsuit, the court held that State Farm

did not breach its duty ofgood faith.

In contrast here, Hartford actively participated in settlement negotiations and

advanced settlement offers intended to preventjudgment against the Ardens.

Although reserving its right to contest coverage, Hartford authorized settlement offers

and evidently agreed to the settlement theory. The "inherent" conflict ofinterest

concern in Tank did not fully materialize. The Ardens' interests(and directions)

authorized settlement conditioned on Hartford paying, which was consistent with

Forsberg's actions. The fact that settlement was initially unsuccessful does not

establish a breach occurred in attempting to settle, since the Ardens were not being

obligated to contribute to any settlements being offered. Certainly, it is true that in a

case where an attorney is offering his or her client's funds in settlement negotiations,

the client must be informed and approve that action. But that is not what occurred

here—^Hartford authorized the funding for settlement. In this case, the Ardens cite no

case supporting a heightened standard or identify how any alleged conflict negatively

impacted their interests.

10 Arden v. Forsberg & Umlauf, P.iS., No. 93207-7

To the extent that Tank informs this case and defense counsel's duty of good

faith, the record shows that like State Farm in Tank, Forsberg fully investigated the

incident, informed the Ardens that it represented only the Ardens, and fully informed

the Ardens of all settlement activity. We find no evidence to suggest that Forsberg

engaged in actions that demonstrated greater concern for Hartford's interests than for

the Ardens'.

That conclusion, though, does not end the analysis. The Ardens cite Tank and

RFC 1.7 to support a duty of disclosure in situations where conflicts may exist or

arise. RFC 1.7 emphasizes the significance ofthe responsibility of counsel to

advise clients. RFC 1.7(a) provides:

[A]lawyer shall not represent a client ifthe representation involves a concurrent conflict of interest. A concurrent conflict ofinterest exists if: (1)the representation ofone 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 ofthe lawyer.

RFC 1.7(a)(2) states that a concurrent conflict ofinterest exists if"a significant

risk that the representation ofone 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 ofthe lawyer." There is no evidence here that established a

concurrent representation or actual conflict at the outset. However,the phrase

11 Arden v. Forsberg c& Umlauf, P.S., No. 93207-7

"significant risk" underscores that this inquiry does not require a fully materialized

conflict, but rather looks to the potential for conflict. In insurance cases where

coverage is disputed, Tank recognizes the risk ofpotential conflicts and notes that the

defense should be closely scrutinized. Under the rule, an attorney with an established

relationship with the insurer could be "materially limited" in his or her ability to

represent solely the interests ofthe insured.

RFC 1.7(b) addresses when counsel may proceed with representation if a

concurrent conflict ofinterest exists. In relevant part, counsel may proceed if"(1)the

lawyer reasonably believes that the lawyer will be able to provide competent and

diligent representation to each affected client;... and(4)each affected client gives

informed consent, confirmed in writing." RFC 1.7(b). Frior consent will generally be

important before undertaking representation. But where no prior consent is given, a

claimed violation ofthe rule does not support a claim for damages without more.

The Ardens are essentially urging a rule that Forsberg was disqualified from

representation based on its past involvement with Hartford, and they argue that since

no consent was given, they are entitled to damages. We reject the suggestion

advanced that wherever a previous relationship between the insurer and retained

counsel exists, a per se disqualification rule is supported. We have no concerns

recognizing the rule requiring disclosure of conflicts, potential or actual, in the context

12 Arden v. Forsberg & Umlauf, P.S., No. 93207-7

of attorneys hired by insurance companies to represent insureds' interests in civil

litigation, whether such representation is provided under an ROR or not. These same

responsibilities exist in the context of dual representation. See generally Eriks, 118

Wn.2d 451. However, a claimed violation ofthe responsibility to disclose is not

controlling in determining liability for claimed breach offiduciary duties, which

necessarily focuses on negligence in the representation and, importantly, resulting

damages.

Here,the allegations are that Forsberg failed to disclose its relationship with

Hartford to the Ardens. While the record discloses that Gibson discussed what a

defense under an ROR looks like, he admitted that "[t]here was no discussion about..

. the fact that Forsberg represents ... Hartford on unrelated cases on coverage

matters." Verbatim Report ofProceedings(Sept. 26,2014)at 62. RFC 1.7(a)(2)

prohibits an attorney from representing two different clients ifthere is a "significant

risk" that the lawyer's responsibilities to one ofthe clients will materially limit the

lawyer's responsibilities to the other client. But the lawyer may still represent both

clients iffour conditions are met: the lawyer reasonably believes that it will be

possible to represent both clients competently and diligently, the representation is not

prohibited by law,the clients are not directly adverse to one another, and the clients

give informed consent after adequate disclosure ofthe relationships. RFC 1.7(b).

13 Arden v. Forsberg & Umlauf, P.S., No. 93207-7

Applying RPC 1.7 here, ifthere was a "significant risk" that representation of

both the Ardens and Hartford would "materially limit" Forsberg's representation of

Hartford, Forsberg was required to disclose to the Ardens its relationship with

Hartford and obtain informed consent to the dual representation. RPC 1.7 would also

require that Forsberg "reasonably believe[]" that it could competently and diligently

represent both clients. These requirements—ascertaining "significant risk," material

limits on representation,"reasonabl[e] belie[f]," and informed consent—^would

generally require trial and expert opinion for resolution and could not usually be

decided on summary judgment.

The duty of care requires attorneys to "exercise the degree ofcare, skill,

diligence, and knowledge commonly possessed and exercised by a reasonable,

careful, and prudent lawyer in the practice oflaw" in Washington. Hizey v. Carpenter,

119 Wn.2d 251,261,830 P.2d 646(1992). The Ardens presented expert testimony by

Professor John Strait concerning the relevant standard ofcare. Professor Strait

concluded that Forsberg's failure to disclose Forsberg's relationship with Hartford

was "not within the range of choices a reasonable, careful, and prudent attorney in

Washington would adopt."^ Clerk's Papers(CP)at 421. Forsberg disagreed and

® While Professor Strait cited the RPCs in general and RPC 1.7 in particular, he emphasized that his conclusions concerning the ethics standards were distinct from his conclusions concerning the appropriate standard of care. Clerk's Papers at 915-16; see LK

14 Arden v. Forsberg & Umlauf, P.S.,'Mo. 93207-7

presented its own expert, Jeffrey Tilden. Tilden concluded that Forsberg's actions

"were within the range ofreasonable alternatives." CP at 364. These conflicting

expert opinions will generally give rise to a genuine issue of material fact, precluding

summary judgment on the question of breach.

However,this conflict over the duty of care does not mean that the trial court

erred in granting summary judgment on a different issue. As stated above,the plaintiff

is also responsible for presenting evidence that the alleged breach ofthe duty ofcare

damaged the Ardens. Hizey, 119 Wn.2d at 260-61. Even assuming that a breach of

duty exists, summary judgment is appropriate where the plaintiff fails to present

evidence that the plaintiff suffered legally recoverable damages.

Damages

The Ardens claim damages based on the arguments that Forsberg breached two

fiduciary duties:(1)a duty to disclose its relationship with Hartford and(2)a duty of

loyalty by failing to consult with the Ardens regarding settlement negotiation. Suppl.

Br. of Appellants at 9-14. The Ardens seek damages on two grounds:(1)

disgorgement offees received by Forsberg for its representation and(2)emotional

distress damages based on a trustee theory. Suppl. Br. of Appellants at 14-19. The trial

court summary judgment order concluded that damages sought based on claims of

Operating, LLC v. Collection Grp., LLC, 181 Wn.2d48,90, 331 P.3d 1147(2014) ("Unquestionably, the RPCs do not purport to set a standard for civil liability.").

15 Arden v. Forsberg & Umlauf, P.S., No. 93207-7

recovery of attorney fees or emotional distress failed as a matter oflaw. The Ardens

continue to challenge that decision here.

As to the disgorgement theory,the Ardens argue that they are entitled to

disgorgement offees by Forsberg because Forsberg's breaches offiduciary duty

constituted "gross misconduct." Suppl. Br. of Appellants at 15. They rely heavily on

the general principle that a breach of ethical duties may result in denial or

disgorgement offees, as was recognized mEriks, 118 Wn.2d at 462-63. We disagree.

In Eriks, attorney William Denver was hired to provide joint legal defense for

all investors and promoters in audits before the federal Internal Revenue Service and

in tax court cases. At the time Denver undertook representation, he knew that his

investor clients potentially could have civil claims against his promoter clients.

Denver discussed all his potential conflicts ofinterest with his promoter clients but did

not do so with his investor clients. When issues arose, Denver continued to represent

the investors without advising them oftheir rights. He later advised the investors to

obtain independent legal counsel ifthey had questions about remedies they might

have against the promoters. This court affirmed disgorgement offees that the

investors paid.

While Eriks has language relied on in the Ardens' argument,Eriks involved a

situation where the court held that the investors were entitled to recover(disgorge)the

16 Arden v. Forsberg & Umlauf, P.S., No. 93207-7

fees they had paid because the attorney subordinated their interests, causing harm. The

case supports the rule that an attorney cannot retain fees paid by a client where the

attorney has violated the duty ofloyalty and where, in essence,the client does not

receive the benefit from the representation. The Ardens cite no authority that permits

them to collect fees that they never paid, and Eriks does not support that result. Since

the Ardens paid no fees, there is nothing to disgorge.

The Ardens also introduce a novel trust theory wherein the relationship

between the insurer, the insured client, and defense counsel is a '"resulting trust.'"

Suppl. Br. of Appellants at 18. They argue that somehow, defense counsel becomes

trustee over the insurance defense asset and owes the insured the duties ofa trustee. In

advancing this argument, no case authority or any other principle is identified to

support the argument. As did the Court of Appeals, we reject this argument.

The Ardens claim that being without a loyal advocate defending them in the

case is, in itself, an injury for which they are entitled to a remedy. Suppl. Br. of

Appellants at 14. The Ardens vaguely claim "emotional distress damages and other

remedies to make Ardens whole and prevent Forsberg from benefitting from its

breach."^ Suppl. Br. of Appellants at 16. While the Court of Appeals expressed

^ It is unclear whether the Ardens seek emotional distress damages under a legal malpraetice theory. If they are, Schmidt v. Coogan, 181 Wn.2d 661, 335 P.3d 424(2014) (plurality opinion), establishes that emotional distress damages are not legally available.

17 Arden v. Forsberg & Umlauf, P.S., No. 93207-7

concern regarding Forsberg's lack ofcommunication in settlement negotiations with

the Ardens,the Ardens fail to assert any facts to establish this caused any injury. The

record establishes that as to settlement, Forsberg, Cushman, and the Ardens had

agreed in the initial settlement strategy that Hartford fund the entire settlement.

Throughout negotiations, Forsberg was advancing the Ardens' directions that

Hartford pay any settlement. The record shows that settlement offers authorized by

Hartford were understood to be authorized by the Ardens.^ As the Court ofAppeals'

decision notes—^there is no evidence to suggest that ifForsberg had consulted with the

Ardens a different result would have occurred. Arden, 193 Wn. App. at 756. In the

end, Hartford ended up funding the settlement. The Ardens have failed to establish

®The letter of representation sent to the Ardens stated that "[ujnless instructed otherwise, we will assume that any settlement authority or [settlement] instructions we receive from ... Hartford to settle the claims against you in this lawsuit are given with your consent." CP at 427. Given the Ardens' directions to Forsberg, it would be more concerning ifthe offers were not presented to the Duffys.

18 Arden v. Forsberg & Umlauf, P.S., No. 93207-7

We affirm the Court of Appeals.

WE CONCUR:

/4i

19 Arden v. Forsberg & Umlauf, P.S., et al.

No. 93207-7

STEPHENS,J.(concurring)—I agree with the majority that the superior court

properly dismissed Roff and Bobbi Arden's claims against Forsberg & Umlauf PS

because there is no support for allowing recovery of emotional distress damages or

attorney fees in this case. On that basis—failure to establish damages—our analysis

should end. I earmotjoin the majority opinion to the extent it discusses the purported

duties owed by Forsberg to the Ardens based on the unsupported conclusion that

Property & Casualty Insurance Company of Hartford (Hartford) was not defending

the Ardens under a reservation of rights.

The majority admits that no one involved in this case agrees with its

conelusion that this is not a reservation of rights case. Majority at 8. Indeed, the

record makes clear that the Ardens, their personal attorney, Forsberg, and Hartford Arden v. Forsberg & Umlauf, P.S., et al., 93207-7(Stephens, J., concurring)

all approached settlement negotiations with the understanding that Hartford reserved

its right to ultimately deny coverage. Thus, contrary to the majority's assertion that

"[t]he 'inherent' conflict of interest concern in Tank [v. State Farm Fire and

Casualty Co., 105 Wn.2d 381, 715 P.2d 1133 (1986)] did not fully materialize,"

majority at 10,the Ardens,no less than the insureds in Tank,faced the risk ofpaying

anyjudgment or settlement. See Tank, 105 Wn.2d at 389("In a reservation ofrights

defense, it is the insured who may pay any judgment or settlement. Therefore, it is

the insured who must make the ultimate choice regarding settlement."). Moreover,

it is not necessary that the risks this court highlighted in Tank "fully materialize" in

order to recognize the heightened obligations of the insurer and defense counsel.

These obligations, including defense counsel's duty of loyalty and of full and

ongoing disclosure, arise due to "the potential conflicts of interest between insurer

and insured inherent in this type of defense." Id. at 387 (emphasis added). They

undoubtedly arose in this case.

At the end of the day, the majority's misunderstanding of the relationship

between Hartford,the Ardens,and Forsberg does not drive its analysis. Nonetheless,

it introduces confusing dicta that I cannot endorse. I would hold simply that

summary judgment was proper based on the Ardens' failure to establish damages,

and affirm the Court of Appeals.

-2- Arden v. Forsberg & Umlauf, P.S., et al, 93207-7(Stephens, J., concurring)

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