The Washington Supreme Court has confirmed the long-standing rule in Washington that a lawyer hired by an insurance company to defend an insured has only one client — the insured — and that the insurance company is not a client in any respect. This case arose out of a mechanic’s lien dispute and evolved into a title insurer malpractice claim against a law firm – an interesting enough situation on its own. The basic facts are these: a lender for purchase of a piece of land, Sterling, hired a title company — Stewart — to make sure that it would have a first priority lien. Stewart messed up: a general contractor, Mountain West, had already started work, giving it first priority. Sterling got sued when Mountain West tried to foreclose on its lien. Stewart was the title company and also, as is usual, issued a title insurance policy providing liability coverage to Sterling. Stewart agreed to hire Sterling a lawyer, the well-known and well-respected Witherspoon Kelley firm. A dispute arose between Witherspoon Kelley and the insurer, Stewart, over strategy. The case ended badly, and the insurer, Stewart, sued the law firm for malpractice.
The problem for the insurer, Stewart, was that under long-settled Washington law, an insurance company is not a client of the lawyer that it hires to defend its insured. (That is a different rule than in Oregon, where the insurance company and the insured are both clients of the attorney, with the attorney’s primary duty and loyalty to the insured.) Stewart argued that although it was a “nonclient,” because its interests were aligned with those of its insured, it was an “intended beneficiary” of the representation of the insured, and could sue. The Washington Supreme Court said no, that the “intent” is to be viewed from the perspective not of the insurer, but of the insured and its attorney, and that neither the insured nor the attorney intended to benefit the insurer. The court also rejected the argument that because the lawyer had a duty to keep the insurance company informed about the case, the lawyer owed the carrier a duty; that contractual obligation, the court found, did not create a duty of care running to the carrier.
The court’s holding is consistent with Washington’s generally protective attitude toward the attorney-client relationship in the insurance-defense context, and the protections that it has extended in the Tank case and after to policyholders being provided a defense by their carriers. The court acknowledged that its holding is in conflict with the law in other states. (No published case law on the subject exists in Oregon, but one would expect Oregon to come out differently than Washington – see above.) But that, of course, is what makes practicing in the Northwest enjoyable – cross a river, and the law is different!