Contractors should not have to be represented by attorneys with conflicts of interest in insurance cases, AGC argues

Attorneys representing contractors shouldn’t have a conflict of interest, right?

That’s the crux of the matter in a case before the State Supreme Court. AGC member Todd Hayes of Harper Hayes PLLC filed an amicus brief on behalf of AGC in the Arden vs. Forsberg Umlauf, P.S. case and asserts that “policyholders want assurance that the lawyer who the insurer appoints to represent the policyholder is truly ‘their’ lawyer—not a lawyer who is also representing the insurance company.”

“Every AGC member is likely insured under one or more liability insurance policies,” says Hayes, who is a member of AGC’s Legal Affairs Committee. “When AGC members get sued, their insurers often defend them under ‘a reservation of rights’—reserving the right to not pay on the member’s behalf at the conclusion of the case. That reservation arguably creates a conflict of interest between the member, who obviously wants the insurer to pay on the member’s behalf should they not prevail, and the insurance company, who may have an interest in uncovering facts during the case that would allow the insurer to argue that it does not have to pay on the member’s behalf.”  

In this case, the Ardens were insured under a liability insurance policy issued by Hartford Insurance Company. Hartford appointed the Forsberg & Umlauf firm to defend the Ardens.  At the time, Forsberg represented Hartford in other cases, including “coverage” cases, i.e., Forsberg represented Hartford in disputes against policyholders like the Ardens. While the case against the Ardens was pending, the Ardens filed a separate lawsuit against Hartford (for bad faith) and Forsberg (for malpractice). Hartford eventually paid to settle the case against the Ardens and the Ardens then dismissed Hartford from their lawsuit, leaving Forsberg as the sole defendant.  

The trial court then dismissed the remaining claims against Forsberg. The Ardens appealed, and Division II affirmed. The Court of Appeals rejected the Ardens argument that an attorney who represents a liability insurer has a conflict of interest under Rule of Professional Conduct 1.7, as a matter of law, when the lawyer represents that insurer's policyholder in a reservation of rights case. RPC 1.7 prohibits a lawyer (absent express consent from the clients) from representing a client if (1) “the representation of one client will be directly adverse to another client”; or (2) “there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.”  

The Ardens filed a Petition for Review, which the Supreme Court recently granted.