Washington’s Supreme Court Grants Review of Court of Appeals’ Decision Finding No Conflict of Interest for Law Firms that Represent Insurers and Defend Insurers’ Policyholders

 

We previously reported here on the Court of Appeals’ decision in Arden v. Forsberg & Umlauf, 193 Wn. App. 731, 373 P.3d (2016) on May 5, 2015. On September 28, 2016, the Washington Supreme Court granted a Petition for Review of the Court of Appeals’ decision in Arden.

In that decision, as a matter of first impression in Washington, the Court of Appeals held as a matter of law that a law firm with an insurer for a client may defend that insurer’s policyholder in an unrelated matter without creating a conflict of interest, or even disclosing that it also regularly represents the insurer in coverage matters.  The Court of Appeals also held that a lawyer defending an insured under reservation of rights does not breach its fiduciary duties to its insured client or commit legal malpractice by (1) not persuading the insurer to accept the claimants’ first demand to the insureds; (2) not engaging in settlement discussions with the claimants until receiving the claimants’ written discovery responses, notwithstanding the insureds’ request for prompt resolution;  or (3) failing to consult with the insureds before rejecting the claimants’ first and second demands when there was no evidence the insureds were harmed by same.