Date: 09-14-2017

Case Style:

Case Number: 93207-7

Judge: Johnson

Court: Supreme Court of Washington

Plaintiff's Attorney: Jon Cushman and Kevin Hochhalter for Plaintiffs

Stewart Estes, Dan Joseph Gunter and Laura Hansen for Amicus Curiae on behalf of Washington Defense Trial Lawyers

Val McOmie and Dan Huntington for Amicus Curiae on behalf of Washington State Association for Justice Foundation

Defendant's Attorney: Sam Breazeale Franklin, Pamela Jo Devet, Philip Albert Talmadge and Sidney Charlotte Tribe for Defendants

Brain C. Hickman and diane Luise Polscer for Amicus Curiae on behalf of Federation of Defense and Corporate Counsel

Todd Christopher Hayes for Amicus Curiae on behalf of The Associated General Contractors of Washington

Description: 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 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.
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 & 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.
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 & 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.
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 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.
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 of this 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 crossmotions
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
appealed.
On 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 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 of the 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 of the 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 of the 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 of the insured's potential liability, the court detailed specific
duties of insurance 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 of the legal profession require undeviating fidelity of the
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 of the 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 of the 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 of liability. Because Tank
made a fully informed decision not to settle the lawsuit, the court held that State Farm
did not breach its duty of good faith.
In contrast here, Hartford actively participated in settlement negotiations and
advanced settlement offers intended to prevent judgment against the Ardens.
Although reserving its right to contest coverage, Hartford authorized settlement offers
and evidently agreed to the settlement theory. The "inherent" conflict of interest
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 of the responsibility of counsel to
advise clients. RFC 1.7(a) provides:
[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.
RFC 1.7(a)(2) states that a concurrent conflict of interest exists if "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." 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 of potential 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 of the insured.
RFC 1.7(b) addresses when counsel may proceed with representation if a
concurrent conflict of interest 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 of the 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 of the responsibility to disclose is not
controlling in determining liability for claimed breach of fiduciary 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 of Proceedings (Sept. 26, 2014) at 62. RFC 1.7(a)(2)
prohibits an attorney from representing two different clients if there is a "significant
risk" that the lawyer's responsibilities to one of the clients will materially limit the
lawyer's responsibilities to the other client. But the lawyer may still represent both
clients if four 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 of the relationships. RFC 1.7(b).
13
Arden v. Forsberg & Umlauf, P.S., No. 93207-7
Applying RPC 1.7 here, if there 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 of care, skill,
diligence, and knowledge commonly possessed and exercised by a reasonable,
careful, and prudent lawyer in the practice of law" 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 of care. 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 of reasonable 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 of the duty of care
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 of fees 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 of law. The Ardens
continue to challenge that decision here.
As to the disgorgement theory, the Ardens argue that they are entitled to
disgorgement of fees by Forsberg because Forsberg's breaches of fiduciary 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 of fees, 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 of interest 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 of their rights. He later advised the investors to
obtain independent legal counsel if they had questions about remedies they might
have against the promoters. This court affirmed disgorgement of fees 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 of loyalty 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 of a 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 of communication 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 of Appeals'
decision notes—^there is no evidence to suggest that if Forsberg 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
damages.
®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 if the 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 earmot join 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 of paying
any judgment or settlement. See Tank, 105 Wn.2d at 389 ("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."). 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.

Outcome: Affirmed

Plaintiff's Experts:

Defendant's Experts:

Comments: