Insurer May Not Sue the Insured’s Attorney for Malpractice

A common issue in insurance coverage matters is the nature of the relationship between the attorney hired to represent the insured and the insurer who pays for the attorneys’ services.  A recent case decided by the Supreme Court of Washington held that an insurer who hires an attorney for their insured cannot later sue that attorney for malpractice.

In Stewart Title Guar. Co. v. Sterling Sav. Bank, 2013 WL 5687998 (2013), a title insured hired counsel to defend its insured’s interests in relation to a lien priority dispute that arose from the title insurer’s failure to detect a superior lien when it issued a title policy to the insured.  With the insured’s consent, their attorney stipulated that the opposing party had a superior lien and entered into a settlement.  The title insurer, however, complained that the insured’s attorney had erroneously failed to raise the defense of equitable subrogation and sued the attorney for malpractice.

Under Washington law, in order for a non-client third party to maintain a malpractice lawsuit against an attorney, the existence of a legal duty owed by the attorney to the non-client third party must be found via application of the multi-factor Trask analysis.  Trask v. Butler, 123 Wn.2d 835, 843, 872 P.2d 1080 (1994).  The relevant factors under the Trask analysis are:

  1. The extent to which the transaction was intended to benefit the third party non-client;
  2. The foreseeability of harm to the third party non-client;
  3. The degree of certainty that the third party non-client suffered injury;
  4. The closeness of the connection between the attorney’s conduct and the injury suffered by the third party non-client;
  5. The policy of preventing future harm; and
  6. The extent to which the legal profession would be unduly burdened by a finding of liability.

The Supreme Court in Stewart Title Guar. Co. held that an alignment of interests between an insurer and their insured is insufficient to give rise to a duty owed by the insured’s attorney to the insurer since it fails to meet the first and most important element in the Trask analysis – that the transaction must be intended to benefit the third party non-client.  “The fact that an insurer’s and insured’s interests happen to align in some respects – though perhaps not in all respects… – does not by itself show that the attorney or client intended the insurer to benefit from the attorney’s representation of the insured.”

Furthermore, the Supreme Court held that even if an attorney has a contractual duty to inform the insurer of the litigation’s progress, such a duty to inform is insufficient to establish the much broader duty of care required to permit the insurer to sue the attorney for malpractice.  Even if an attorney has a duty to inform the insurer, this does not establish that the attorney’s representation was intended to benefit the non-client third party.

If you or your business needs legal guidance to navigate the complexities of insurance coverage, consult an experienced attorney at Montgomery Purdue Blankinship & Austin, PLLC.