United States: No One Can Serve Two Masters: The Washington Supreme Court Confirms That Insurer-Appointed Defense Counsel Owes Ethical Duties Solely To The Policyholder

Last Updated: October 18 2013
Article by Peter D. Laun

When claims are made against parties that have liability insurance coverage, insurance companies frequently have a duty to defend under their policies.  The insurer selects the lawyers to defend the claim, pays their bills, and (at times) provides, or attempts to provide, input into the defense.  Often, insurance companies hire defense counsel with whom they have a long or close relationship, who therefore are beholden to the insurance company for future business.  This can lead to an awkward situation when the insurer's interests and those of the policyholder are not completely aligned, such as (1) when the insurer has asserted coverage defenses that turn on facts being litigated in the underlying action or (2) where a litigation tactic is good for the policyholder but not necessarily the insurer (e.g., admitting or contesting a fact that bears on liability or coverage).

Most jurisdictions make clear that defense counsel's client, in the context of a claim where insurance is involved, is the policyholder—and not the insurance company—although some courts have found that the lawyer also owes duties to the insurance company as a third party beneficiary (sometimes referred to as a tri-partite relationship).  But even in jurisdictions where defense counsel's only client is the policyholder—and therefore only its interests are to be considered in conducting the litigation—defense lawyers and policyholders sometimes struggle with the issue of whether, and if so to what extent, the insurer's interests are be taken into account.  After all, a lawyer who gets a lot of business from an insurance company likely will want to maintain a good relationship with the insurer,  even though (1) his only client is supposed to be the policyholder (and his only duties run to the policyholder), and (2) the interests of the insurer and the policyholder can easily diverge in litigation if the insurer asserts coverage defenses or the policyholder and the insurer disagree about how to conduct the litigation (including, for example, filing summary judgment motions that could eliminate covered claims and settlement decisions).

In a recent case, Stewart Title Guar. Co. v. Sterling Savings Bank, (Wash. October 3, 2013) (http://www.courts.wa.gov/opinions/pdf/870870.pdf), the Supreme Court of Washington held that a lawyer defending a policyholder has no duties to the insurer, despite the fact the insurer hired the law firm and, arguably, the law firm's work was performed in part to benefit the insurer, which was ultimately liabile for the claim under its title insurance policy.  Rather than skirting around the issue, as some courts have done, and treating the insurer as a third-party beneficiary of the work, the court established a clear rule:  the only client whose interests the lawyer must serve—indeed, can serve—are those of the policyholder.

In Stewart Title, a contractor asserted a lien priority claim against Sterling Savings Bank ("Sterling Savings"), which had lent money to a property developer.  Sterling Savings held a title insurance policy issued by Stewart Title ("Stewart Title").  Sterling Savings tendered the lien claim to Stewart Title, which hired a law firm, Witherspoon, Kelley, Davenport & Tolle ("Witherspoon"), to defend Sterling Savings.  The lien case was ultimately resolved in favor of the contractor after Witherspoon, acting on behalf of Sterling Savings, stipulated to the contractor's lien priority over the Sterling Savings loan and entered into a settlement with the contractor that resulted in a payment of the contractor's lien.  Id. at 2-4.

After the lien case was resolved, Stewart Title sued Witherspoon for malpractice, asserting that Witherspoon had improperly failed to raise an equitable subrogation defense against the contractor.  Id. at 4.  The trial court found that Witherspoon had a duty to Stewart Title due to its role as Sterling Savings' insurer, but granted summary judgment to Witherspoon on the basis that the equitable subrogation defense was not viable under the circumstances and Washington law.  Id. at 4-5.  The Supreme Court of Washington accepted review and affirmed the trial court's summary judgment grant, but on a completely different basis.

The court held that, Witherspoon's "only client was Sterling" (id. at 5) and accordingly that Witherspoon owed no duties whatsoever to Stewart Title, even though Stewart Title ultimately bore potential liability under its title insurance policy for the lien priority claim asserted against Sterling Savings.  Reviewing the test it had previously articulated in Trask v. Butler, 123 Wn.2d 835, 872 P.2d 1080 (Wash. 1994) (which addressed whether third parties can bring malpractice claims against attorneys), the court focused primarily on whether, under the first factor in Trask, the work performed by defense counsel was intended to benefit the third party suing the attorney (here, Stewart Title).  The court found that the interests of Sterling Savings and Stewart Title were not sufficiently aligned for Witherspoon to owe a duty to Stewart Title, and accordingly that Witherspoon's work was not "intended to benefit" Stewart Title.  Stewart Title at 8 (emphasis in original).  The court noted, among other things, that finding a duty of care by defense counsel to an insurer merely because it pays the bills would violate Washington's Rule of Professional Conduct 5.4(c), which states:  "A lawyer shall not permit a person who recommends, employs, or pays the lawyer to render legal services for another to direct or regulate the lawyer's professional judgment in rendering such legal services."  Id. at 9 and n.3.

The Washington Supreme Court also rejected Stewart Title's argument that Witherspoon failure to keep Stewart Title informed about the litigation gave rise to a malpractice claim.  The court held that a duty to keep a third party informed—even if it existed and was breached—could not support a malpractice claim against Witherspoon by Stewart Title because Witherspoon did not owe a duty of care to a non-client.  Id. at 10-11.

Accordingly, the court affirmed the trial court's summary judgment in favor of Witherspoon on Stewart Title's malpractice claim.  In its discussion, the court noted that a few states have found a duty of some sort running from defense counsel retained by an insurer to the insurer.  Id. at 8 n.2 (citing cases from Arizona and California).  However the court focused on the significant conflicts that can arise between an insurer and a policyholder in the defense of an action, concluding that in such circumstances the sole client of defense counsel must be the policyholder, and therefore that defense counsel's ethical duties run only to its actual client, the policyholder.

In this author's opinion, the Washington Supreme Court resolves this thorny issue in the only sensible way.  Defense counsel must be free to make decisions about how to conduct litigation that benefit its client, the policyholder (including matters such as what facts to admit, what defenses to assert, whether to file motions for summary judgment on covered claims, etc.), even if those decisions are not necessarily in the interest of the insurer.  No attorney can properly serve two masters, nor should he or she ever be asked to do so in circumstances where their interests might not be completely aligned.  While an insurer in most circumstances will benefit from the work done by defense counsel, when defense counsel makes litigation decisions that benefit the policyholder—but may be against the insurer's wishes or interests—its judgment should not be subject to second guessing by the insurer in subsequent malpractice litigation.  As the ethics rules in most states make clear, a lawyer must zealously represent its client, and having to weigh the interests of two parties—a client and a non-client–when those interests may not be completely in sync puts defense counsel in an impossible position.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Peter D. Laun
In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions