Arden v. Forsberg & Umlauf, PS
93207-7
| Wash. | Sep 14, 2017Background
- Roff and Bobbi Arden were sued after Roff allegedly killed a neighbor's puppy; they sought a defense from their insurer, Hartford.
- Hartford initially denied coverage, the Ardens retained private counsel (Cushman), then Hartford agreed to provide a defense and appointed Forsberg & Umlauf (Hayes and Gibson) to defend the Ardens (Cushman remained for counterclaims).
- Forsberg had a longstanding relationship representing Hartford on coverage matters; Forsberg did not disclose that relationship to the Ardens.
- Settlement negotiations occurred: the Ardens wanted Hartford to fund any settlement; Hartford later issued a reservation of rights and authorized settlement offers lower than the plaintiffs’ demands; settlement was ultimately funded by Hartford at global mediation.
- The Ardens sued Forsberg for breach of fiduciary duty/legal malpractice, alleging failure to disclose the firm’s relationship with Hartford and failure to consult during settlement negotiations; the trial court granted summary judgment for Forsberg and the Court of Appeals affirmed; the Washington Supreme Court affirmed in result.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Duty to disclose Forsberg’s prior relationship with Hartford | Forsberg had a duty under RPC 1.7 and Tank to disclose its relationship and obtain informed consent; failure is a breach of fiduciary duty | No per se disqualification; disclosure duty exists but is fact-specific and not automatically actionable absent proof of injury | Disclosure obligations exist under RPC 1.7, but nondisclosure alone does not establish liability without causative damages |
| Duty to consult with insured on settlement negotiations | Forsberg failed to consult the Ardens and took directions from Hartford, breaching loyalty | Forsberg pursued the Ardens’ strategy (Hartford to pay); settlement authority from Hartford was consistent with Ardens' instructions | No evidence Forsberg subordinated Ardens’ interests or that failure to consult caused injury; no breach producing damages shown |
| Availability of disgorgement of fees remedy | Seek disgorgement of Forsberg’s fees as remedy for fiduciary breach/gross misconduct | Eriks limited disgorgement to fees paid by harmed clients; Ardens paid no fees to Forsberg so disgorgement unavailable | Disgorgement not available because Ardens did not pay Forsberg fees; Eriks does not authorize disgorgement of third-party-paid fees here |
| Characterization as a Tank reservation-of-rights case and applicable duties | Ardens treat case like Tank—heightened obligations apply when insurer reserves rights | Court: factual differences (Hartford initially denied then later ROR; Hartford actively participated and funded settlement offers) mean Tank isn’t fully controlling though it informs duties | Tank’s principles inform disclosure/loyalty duties, but here Tank’s heightened conflict concerns did not produce a demonstrable injury; outcome affirmed on failure to prove damages |
Key Cases Cited
- Tank v. State Farm Fire and Casualty Co., 105 Wn.2d 381 (1986) (sets duties for insurer-provided defense under reservation of rights, including defense counsel’s loyalty and disclosure obligations)
- Eriks v. Denver, 118 Wn.2d 451 (1992) (disgorgement of attorney fees available where lawyer’s conflict and loyalty breach caused clients harm and deprived them of benefit of representation)
- Hizey v. Carpenter, 119 Wn.2d 251 (1992) (defines attorney duty of care standard in Washington legal malpractice claims)
- Schmidt v. Coogan, 181 Wn.2d 661 (2014) (addresses availability of emotional distress damages in legal malpractice context)