The Tripartite-Relationship and Insurers' Legal Standing

In a case of first impression, the Washington Supreme Court was asked to determine “whether an attorney hired by a title insurer to represent its insured owed a duty to the non-client insurer and, hence, whether that insurer can sue the lawyer for negligently representing the insured during the defense.”  The court concluded that neither the common interest between the insurer and the insured, nor any contractual duty that might be owed by the law firm to the insurer to keep it informed about the progress of the underlying litigation, were sufficient to create a duty of care that would support a malpractice claim by the insurer.  Such a duty would also violate the relevant Rules of Professional Conduct, which prohibit an attorney from surrendering his professional judgment when rendering legal services, observed the court.

The case concerned a mechanics’ lien on property in which Sterling Savings Bank had a construction loan.  In the litigation over priority of interests, the attorneys hired by Stewart Title to defend the Bank’s interest stipulated that the mechanics’ lien took priority over Sterling’s security interest.  Stewart Title then fired the law firm, contending they gave in on the argument too soon.  Stewart Title subsequently sued the law firm for legal malpractice.  The suit was met with a motion for summary judgment.

On direct review, the Washington Supreme Court held the law firm’s duty ran only to the insured, Sterling, and it owed no duty to Stewart Title, a non-client.

The State of Washington thus joins those jurisdictions which hold the tripartite-relationship gives an insurer no standing to bring a legal malpractice suit against defense counsel for negligence when it defends the insured.  Several other jurisdictions have held otherwise, and the Restatement (Third) of the Law Governing Lawyers §51 comment g (2000) argues for a different result.

For more information on professional liability matters, contact attorney William Saturley at 603-410-1500 or any member of Preti Flaherty's professional liability practice group.