Arden v. Forsberg & Umlauf, et. al.

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ARDEN V. FORSBERG & UMLAUF, ET. AL.

BY: GREGG BERTRAM, M.A., J.D., LL.M. AND ROGER HILLMAN, J.D.

Déjà vu? Washington’s Supreme Court may have enhanced insurer’s good faith duty to insured’s in Arden v. Forsberg & Umlauf, et al.

On September 14, 2017 in Arden v. Forsberg & Umlauf (Case No. 93207-7), the Supreme Court of Washington again considered the nature and scope of an insurer’s fiduciary relationship with its insureds. In Arden, however, the court’s focus was more upon the conduct of the attorneys retained by the insurer, Property and Casualty Company of Hartford (Hartford) than the insurer itself.

Briefly, in December 2011 Roff Arden, a Hartford Insured, shot and killed a six month old Labrador puppy owned by neighbors Wade and Anne Duffy. The Duffys sued the Ardens in June 2012 alleging intentional and negligent conduct.  Hartford initially denied a defense and coverage based upon the policy’s intentional act exclusion. Several months later, Ardens’ personal counsel persuaded Hartford to retain attorneys at the Forsberg & Umlauf law firm (Forsberg) to defend the Ardens. Unbeknownst to the Ardens, Forsberg had a long standing professional relationship with Hartford.

Soon thereafter and in consultation with Ardens personal attorney, Forsberg entered into settlement negotiations with the Duffys. Hartford also issued a reservation of rights letter in January 2013. Settlement negotiations continued into March 2013, but ultimately failed. On March 15, 2013 Ardens sued Hartford for bad faith and later added Forsberg. The Ardens settled with Hartford in August 2013 but continued to litigate against Forsberg.

Ardens claimed that Forsberg breached its fiduciary duties of disclosure and loyalty by failing to disclose its relationship with Hartford and by failing to communication with and seek consent from the Ardens during settlement negotiations. The Trial Court granted Forsberg’s motion for summary judgment of dismissal on the grounds that there was no disqualifying conflict of interest and no support for recovery of damages as a matter of law.  The Washington Court of Appeals affirmed dismissal of the Ardens’ claim and determined that retained counsel in a reservation of rights case has no duty to disclose its relationship with the insurer to the insured. The court of appeals relied upon the case of Tank v. State Farm Fire And Casualty Co., 105 WN.2D 381 (1986) in support of its decision.

Citing Tank, the Supreme Court of Washington noted that in a true reservation of rights case the insured must decide to settle because it is the insured who may be responsible for payment of the settlement. And in Tank, the insured made the decision to try the case which he lost with no liability flowing to State Farm. By contrast, in Arden, Hartford managed settlement and financed all settlement offers. Neither Hartford nor Forsberg asked the Ardens to pay toward any settlement.

The court further found that Forsberg informed the Ardens that it represented only their interest, fully investigated the Duffy’s claims and kept the Ardens apprised of all settlement activity. Importantly, the court determined that Forsberg had no duty to disclose the nature of its relationship with Hartford under Rule of Professional Conduct 1.7 here if only because the Ardens could prove no legally recoverable damages whatsoever.

Unspoken in both the Tank and Arden opinions is the nature of the insured’s conduct in each case. Tank involved an assault by the insured upon another customer in a grocery store. In Arden, the insured shot and killed a puppy! It may be naïve to assume that the nature of the insured’s conduct for which coverage is sought is entirely irrelevant to a court’s insurance bad faith analysis.

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