In Stewart Title Guaranty Company v. Sterling Savings Bank, No. 87087-0 (October 3, 2013), the Washington Supreme Court held than an insurer cannot maintain a malpractice action against the attorneys retained to defend its insured in a civil action because counsel for the insured does not owe a duty to the insurer.
Stewart Title Guaranty Company (“Stewart Title”), a title insurer, retained the law firm of Witherspoon, Kelley, Davenport & Toole PS (“Witherspoon”) to represent its insured, Sterling Savings Bank, in connection with a lien priority action. The lien priority action was decided against Sterling Savings Bank. Stewart Title then brought a malpractice action against Witherspoon, alleging Witherspoon was negligent for failing to raise the defense of equitable subrogation on behalf of Sterling Savings Bank.
Witherspoon filed a motion or summary judgment arguing Sterling Savings Bank – and not Stewart Title – was its client and, therefore, it owed no duty to Stewart Title. Witherspoon argued in the alternative that even if Stewart Title could bring such a claim, it did not commit malpractice because the equitable subrogation theory would have been unsuccessful as a matter of law. The trial court ruled Witherspoon did owe a duty to Stewart Title because Stewart Title was an intended beneficiary of Witherspoon’s services. The trial court, however, concluded Witherspoon was not negligent because the equitable subrogation defense would have failed as a matter of law.
On appeal, the Supreme Court of Washington affirmed the entry of summary judgment in Witherspoon’s favor, although on different grounds than the trial court. The Supreme Court rejected the trial court’s conclusion that Stewart Title was an intended beneficiary of Witherspoon’s services and, thus, held Witherspoon owed no professional duty to Stewart. The Supreme Court recognized that the interests of Stewart Title and its insured were aligned, but ruled “[t]he alignment of interests is insufficient to find a duty running from Witherspoon to Stewart Title for purposes of a malpractice claim.” The Supreme Court stated the fact an insurer’s interests may be aligned in some respects with its insured’s interests does not by itself show the attorney or client intended the insurer to benefit from the attorney’s representation of the insured.
The Supreme Court noted a contrary conclusion could make any third party payor an intended beneficiary of a legal services contract in violation of the Washington Rules of Professional Conduct, which state an attorney must not allow a third-party payor to direct or regulate the attorney’s professional judgment. The Supreme Court also rejected Stewart Title’s argument that Stewart Title was an intended beneficiary of Witherspoon’s services because Witherspoon had a duty to keep Stewart Title informed about the progress of the lien priority litigation. The limited duty to inform a non-client third-party payor does not give rise to a broad duty of care that would support a malpractice action.
Thus, while the court acknowledged that other jurisdictions, such as Arizona, California and Michigan, may permit insurers to bring malpractice claims against defense counsel, the Supreme Court of Washington concluded that such a claim is not cognizable under Washington law.
