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Washington Supreme Court Holds Law Firm May Represent Insured in Lawsuit Against Former Client

On May 21, 2020, the Washington Supreme Court unanimously held in Plein v. USAA Cas. Ins. Co., 97563-9, 2020 WL 2568541 (Wash. May 21, 2020), that a former client seeking to disqualify the adverse party’s lawyer has the burden of showing that matters were substantially related, and that a matter is not “substantially related” to representation of the former client if it is not factually related to any representation of the former client.

In this case, the law firm Keller Rohrback LLP (“Keller”) represented homeowners in a lawsuit against USAA Casualty Insurance Company (“USAA”) alleging that USAA refused to pay for expenses after a house fire in bad faith. Keller had previously represented USAA for many years in various cases, including a suit with similar allegations involving a house fire. As part of this former representation, Keller had gained information regarding USAA’s policies and practices, thought processes, and business and litigation philosophies and strategies. Keller’s representation had included matters involving allegations similar to those made by the homeowners. On this basis, USAA alleged a conflict of interest disqualifying Keller under Rule of Professional Conduct 1.9, which states that a lawyer may not represent a new client against a former client “in the same or a substantially related matter in which that person’s interests are materially adverse to the interests of the former client.”
The Washington Supreme Court, siding with the majority of jurisdictions, first determined that the burden for showing that matters are “substantially related” rests with the former client. In that context, the court then concluded that the facts of this case and those of prior USAA cases, including the prior house fire case, were distinct and unrelated. Likewise, the court concluded that the information Keller gained when it represented USAA did not preclude Keller’s representation of the homeowners. As such, the court held that Keller was not disqualified from representing the homeowners against USAA.

Disclaimer: The opinions expressed in in this blog are those of the author and do not necessarily reflect those of Soha & Lang, P.S. or its clients.

Washington Supreme Court Holds that School Districts Owe an Ordinary Duty of Care to Students

On November 1, 2018, the Washington Supreme Court held in Hendrickson v. Moses Lake School District, No. 94898-4, that school districts are subject to an ordinary duty of care, not a heightened duty of care, in an unanimous opinion.

In this case, a student injured herself in a woodshop class when she did not properly follow procedures with a table saw while the teacher was supervising other students.  The student sued the school district, alleging that it was vicariously liable for the teacher’s negligence.  At trial, the student proposed a jury instruction that imposed a heightened duty of care, which the trial court declined to use.  After the jury found that the school district’s negligence was not the proximate cause of the student’s injuries, the student appealed.  The intermediate court of appeals reversed in part, holding that the trial court should have provided a jury instruction imposing a heightened duty of care.  The school district then appealed to the Washington Supreme Court.

The Washington Supreme Court noted that, although a party is not typically required to take affirmative action to protect another party from harm, there is a special relationship between school districts and students.  School districts have “a duty to protect their students from foreseeable harm, even when that harm is caused by third parties.”  However, this special relationship only requires school districts “to exercise such care as an ordinarily responsible and prudent person would exercise under the same or similar circumstances.”  Accordingly, the trial court did not err by providing a jury instruction that imposed an ordinary duty of care, instead of the proposed heightened duty of care.

Disclaimer: The opinions expressed in in this blog are those of the author and do not necessarily reflect those of Soha & Lang, P.S. or its clients.

Determination Of Whether Party Improves Position on Trial De Novo After Mandatory Arbitration Includes Statutory Costs

On April 12, 2018, the Washington Supreme Court held in Bearden v. McGill, No. 94320-6, that statutory costs are included when determining whether a party has improved its position at a trial de novo after a mandatory arbitration award.

 

In the underlying matter, the parties went to mandatory arbitration, and the arbitrator awarded damages plus statutory costs to the plaintiff.  The defendant requested a trial de novo, and at trial, the jury awarded the plaintiff less in damages but more in statutory costs, for a total award that was greater than the amount the plaintiff was awarded in mandatory arbitration.  The trial court also granted the plaintiff attorney fees and costs, on the basis that the defendant’s position did not improve from the arbitration award to the trial de novo.

 

The defendant appealed, and the appellate court reversed and vacated the award of attorney fees and costs, holding that the only comparison between the arbitration award and the trial award should be the common elements of the awards in each proceeding and only include “those costs and fees litigated before the arbitrator and the trial court.” On remand, the appellate court again reversed, holding that the comparison should only include the damages portions of each award and not the statutory costs awarded in either proceeding.

 

The Washington Supreme Court reversed the appellate court, holding that based on the language and legislative history of the Mandatory Arbitration Rules and applicable statutes, as well as what an ordinary person would understand in comparing an arbitration award and a trail award, statutory costs are included in the calculations of a party considering a trial de novo.  However, if a substantial change of parties or claims brought occurs after the arbitration award and at the trial de novo, then this comparison may be unfair and need to be considered further by the trial court.

 

Justice Yu concurred, arguing that the holding could be more succinct, and Justice Wiggins dissented, arguing that the amount of costs awarded does not have anything to do with the merits of the dispute and should therefore not be considered when determining whether a party has improved its position.

 

Disclaimer: The opinions expressed in this blog are those of the author and do not necessarily reflect those of Soha and Lang, P.S. or its clients.

Insurer Had No Duty To Defend Or Indemnify Where Neither Facts Alleged Nor Damages Sought in Underlying Suit Fell Within Policy Coverage

In Cincinnati Ins. Co. v. Zaycon Foods LLC, 2018 WL 847247 (E.D. Wash. February 13, 2018) (ECF 54), the U.S. District Court ruled that a liability insurer had no duty to defend or indemnify where neither the underlying complaint nor extrinsic facts described a claim for damages that could be covered under the policy.

In the underlying suit, Zaycon was sued by its former CEO for alleged violations of state and federal securities laws, fraud, negligent misrepresentation, breach of fiduciary duty, and breach of contract relating to the former CEO’s ouster as CEO.  Cincinnati agreed to defend Zaycon under a reservation of rights.

Represented by Gary Sparling and Sarah Davenport of Soha & Lang, P.S., Cincinnati filed an action for declaratory relief, seeking a declaration that the claims in the underlying suit did not fall within the coverages provided in Cincinnati’s policies issued to Zaycon.  In response to Cincinnati’s summary judgment motion, Zaycon argued that certain allegations in the underlying complaint could be interpreted to describe defamation.  The Cincinnati policies provided coverage for, among other things, “personal and advertising injury” arising out of “[o]ral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services.”  Zaycon argued that although the underlying suit did not formally state a cause of action for defamation, the allegations in the complaint and extrinsic facts nevertheless demonstrated that the underlying suit included claims for false statements that allegedly damaged the former CEO’s reputation.

The court disagreed, and held that the underlying complaint did not allege or imply that the alleged false statements by Zaycon’s members had damaged the former CEO’s reputation, nor did the complaint seek damages for such harm.  The court further held that the extrinsic facts failed to demonstrate that Zaycon faced potential liability for defamation in the underlying suit, when the complaint did not allege any claim for such damages.  Accordingly, the court granted summary judgment and ruled that Cincinnati had no duty to defend or indemnify, and that Cincinnati could immediately withdraw from any further defense in the underlying suit.

 

Disclaimer: The opinions expressed in this blog are those of the author and do not necessarily reflect those of Soha and Lang, P.S. or its clients.

Ninth Circuit Holds that Municipal Risk Pool Does Not Owe Duties Under Washington Insurance Law

In Alex Jones et al. v. St. Paul Fire & Marine Ins. Co., et al., Nos 15-35856 & 16-35160, 2017 WL 6333768 (9th Cir. Dec. 12, 2017) (unpublished), the Ninth Circuit Court of Appeals held that claims against a Washington municipal risk pool, WRCIP, for breach of contractual and extra-contractual duties had no merit.  Among other things, the Ninth Circuit held that the municipal risk pool was not an “insurer” under Washington law and, in fact, was a co-insured with the risk pool members under an insurance policy issued by St. Paul & Marine Insurance Company (“St. Paul”).  Accordingly, any dispute that the plaintiffs had over insurance coverage was with St. Paul and not with the risk pool:

WRCIP is not an insurer but an insured, and it satisfied its duties under its contract with St. Paul when it paid the self-insured retention. Any dispute that [plaintiffs] Jones and Vargas have over insurance coverage is therefore with St. Paul and not with WRCIP.

The Ninth Circuit also rejected the plaintiffs’ arguments that the risk pool had extra-contractual duties under Washington insurance law (internal citations omitted):

Jones and Vargas also failed to state other causes of action against WRCIP because they have not plausibly alleged that WRCIP owed them any extra-contractual duties. They acknowledge that the district court was correct in ruling that WRCIP is exempted by Washington statute from the definition of “insurer,” so it does not owe an insurer’s statutory duties.

Jones’s and Vargas’s alternative bases for extra-contractual duties are unpersuasive. WRCIP owes them no common-law fiduciary duties because neither of them (nor their public defense attorneys) “occupie[d] such a relation to” WRCIP “as to justify [them] in expecting that [their] interests will be cared for.” Jones and Vargas also rely on a general preambulatory provision of Washington’s insurance code to suggest that WRCIP owes them duties of good faith related to the general business of insurance. But under Washington law, self-insurance and the payment of self-insured retentions are not insurance, so there is no reason to imply duties on WRCIP from Washington’s insurance law. Even if there were, Jones and Vargas have failed to plead any failure by WRCIP to act in good faith because it paid its self-insured retention, at which point any coverage duties fell to St. Paul.

Accordingly, the Ninth Circuit affirmed the district court’s dismissal of all claims against the risk pool.

 

One of the plaintiffs also filed suit against Canfield & Associates (“Canfield”), the third-party administrator responsible for the risk pool’s day-to-day administration.   In a footnote, the Ninth Circuit explained that its analysis of the claims against the risk pool also governs the claims against Canfield.  Thus, the Ninth Circuit agreed with the district court’s dismissal of the claims against Canfield as well.

 

 

Authors: Sarah Davenport and Paul Rosner

Disclaimer: The opinions expressed in this blog are those of the authors and do not necessarily reflect those of Soha and Lang, P.S. or its clients.