- Setting the Stage to Make the Insurers Pay the Excess Verdicts
- May 28, 2015 | Author: Edward Le
- Law Firm: Edward K. Le, PLLC - Renton Office
- A. Introduction
Plaintiff’s attorneys live in an age where low-ball offers from insurance companies are now the norm, rather than the exception. Cases where insurers normally settle in the past are now being tried with regularity. The objective of the insurers is simple: discourage attorneys from prosecuting legitimate claims by raising the financial and labor costs of moving forward to dissuade the claimant’s attorney. Hence, it is all the more important that when the plaintiff’s lawyer do go to trial and get that excess verdict, a well thought-out plan is in place to maximize the recovery and hold the insurers accountable to fully pay the amount of the verdict.
In most instances, it is difficult to collect directly from the defendant. In almost all of the excess verdicts I ever obtained, the defendants either do not have the cash or assets to pay off the judgment. Further, the usual route of initiating collection proceedings against the defendant such as getting wage garnishment orders, placing a lien on the defendant's properties, or instituting foreclosure action is usually more hassle than it is worth. Usually, the most practical and feasible solution is to obtain an assignment of claims from the defendant, in exchange for a covenant not to execute, and go after the defendant’s insurers for the excess verdict.
However, unless the correct procedural steps are taken to properly “set up” the insurance company, most insurance companies will balk at paying any funds that are above the third party policy limits of the defendant. The point of this paper is to discuss and set forth several suggestions that you, as the plaintiff’s attorney, can follow to maximize the ability to collect on the excess verdict and hold the insurance company accountable.
B. Is it Possible to Collect From the Insurance Carrier Damages Beyond the Defendant’s Policy Limits?
Yes. Some attorneys are puzzled about whether an excess verdict, or a verdict that is above and beyond what the liability insurance carrier insures the defendant for, is collectible. Depending on whether the correct procedural steps to “set up” the defendant’s insurance carrier were first put in place, the answer is definitely yes. However, it is also contingent on whether the defendant is willing to cooperate and assign his “bad faith” claims to you in exchange for a covenant not to execute. Unlike some other jurisdictions where your only recourse will be to collect directly from the defendant if the verdict exceeds the defendant’s insurance limits, Washington laws is blessed with favorable jurisprudence that allows you to hold the insurer’s feet to the fire.
In Hamilton v. State Farm, 83 Wn.2d 787, 523 P.2d 193 (1974), our Supreme Court recognized the long-standing principle that an insurer has an affirmative duty to make a good faith attempt to settle within the limits of liability:
“ We have recognized that, with great unanimity, the cases hold that an insurance company which has paid a judgment against its insured to the extent of its liability under the policy of insurance, may be held liable for damages to its insured for a failure to adjust or compromise a claim within the limits of liability, if that failure is attributable to negligence or bad faith. Murray v. Mossman, 56 Wn.2d 909, 355 P.2d 985 (1960). And see Bowker v. McDonald, 49 Wn.2d 633, 145 P.2d 800 (1957). See also Burnham v. Commercial Cas. Ins. Co., 10 Wn.2d 624, 117 P.2d 644 (1941), where we said that if investigation of the circumstances and facts surrounding an accident disclose liability on the part of the insured, it is the affirmative duty of the insurer to make a good faith attempt to effect settlement.
Hamilton, 83 Wn.2d at pg. 792.
“If the company through its attorney deviates from this standard and such deviation results in a loss to the insured, whether it be a result of negligence or bad faith, then that insurance company must respond in damages and compensate the insured for her loss.
The flat refusal to negotiate, under circumstances of substantial exposure to liability, a demonstrated receptive climate for settlement, and limited insurance coverage may show lack of good faith as well.”
Hamilton, 83 Wn.2d at pg. 791.
In Tank v. National Indemnity/Nationwide, 715 P. 2d 1133, 105 Wn. 2d 381 (1986), the Washington Supreme Court held that this duty is based upon a special relationship and fiduciary responsibility that an insurance company have with their policyholder/insureds. The Court explained that the duty to act in good faith or liability for acting in bad faith refers to the same obligation and that the terms are used interchangeably. Good faith implies “more than honesty and lawfulness of purposes” but also implies a “broad obligation of fair dealing” and a responsibility to give “equal consideration” to the insured’s interest.
In Safeco Insurance Co. of America v. Butler, 118 Wn. 2d 383, 390, 823 P. 2d 499 (1992), the Supreme Court expanded this axiom to hold that even if an insurer acts in good faith, it may still be liable for damages to its insured if it is negligent. In addition to Tank, Hamilton, and Butler, Washington jurisprudence is replete with favorable case authorities. For example, an insurer can be guilty of bad faith for the following:
1. Wrongful refusal to defendant a claim - Waite v. Aetna, 77 Wn.2d 850, 467 P. 2d 846 (1970);
2. Failure to settle within policy limits - Hamilton v. State Farm, 83 Wn.2d 787, 523 P.2d 193 (1974);
3. Wrongful refusal to pay a claim - Levy v. North American Company, 90 Wn.2d 846, 586 P. 2d 845 (1978);
4. Conducting a shoddy investigation or an investigation in bad faith - Coventry Associates v. American States, 136 Wn.2d 269, 961 P.2d 933 (1998)
5. Wrong failure to promptly adjust claims-- Janofsky v. Preferred Ins. Exchange, 52 Wn.2d 801, 329 P.2d 207 (1958)
Because of these risk factors, one of the most effective ways to exert pressure on the insurance company to settle your case is to invoke the fiduciary duty they hold with their insured, namely the defendant, from a potential adverse excess judgment. As the cases above demonstrate, Washington laws demand that an insurance company put the financial interest of their insured [the defendant] ahead of their own. They not only owe a duty of good faith in adjusting the claim, but to conduct a diligent, impartial, and fair evaluation.
C. How to Put the Insurer “On the Hook” for an Excess Verdict
In real life, we all know of insurance companies who shirk these fiduciary and legal responsibilities. Indeed, many of the so-called insurance companies that use Colossus to evaluate claims have taken a hard line stance in resolving these cases. They have chosen to take more cases to trial rather than resolving them, often exposing their insureds to a potential excess verdict. IN fact, from my own experience and the reports I hear from other plaintiff’s lawyers, some of these insurers engage in outright deception about the risks their insured face at trial. For example, some of these insurance companies often would tell their defendant insured “not to worry” about any potential “big” verdict because they “got their back.” Yet, they don’t even bother to inform their insured about ongoing settlement discussions. In several instances, defendants would tell me during depositions in supplemental proceedings that they were never even informed about settlement offers that were made to settle within their policy limits. These same defendants would report that they are not even told about mediations that were conducted to resolve their cases, when their livelihood and assets were potentially at stake. During these same supplemental proceedings, I would even be told that these defendants were on their own. One defendant who was hit with a big excess verdict told me that she was even urged by her insurance company to file bankruptcy.
These defendants did not know they had strong protection against facing personal liability if their insurance company had the opportunity to settle within the policy limits and did not do so. It was only after hiring personal counsel did they learn these same insurance company could held liable for the full amount of damages that result from a jury verdict, along with a significant amount of additional damages such as attorney fees, emotional distress, and other consequential damages.
Below are some of the procedural steps that I believe are require to put the defendant’s insurer “on the hook” for any eventual excess verdict
1. Demand to Know What the Defendant’s Insurance Before Filing Suit
You cannot adequately write a demand for the defendant’s policy limits unless you know what the policy limits are. Years ago, insurance companies would refuse to divulge the insurance limits of their policyholders and the only way a plaintiff’s attorney would be able to find out is through filing suit. That change with the decision in Smith v. Safeco, 150 Wn.2d 478, 78 P.3d 1274 (2003), where our Supreme Court held that it may be bad faith for an insurer to not disclose the policy limits of their policyholders if such failure could result in a lawsuit being filed that eventually led to an excess verdict. The practical effect of this decision is that the overwhelming majority of insurers now will disclose their insured’s policy limits if the plaintiff’s attorney makes the request in writing. Attached as Appendix 1 as an example of a letter to the insurance carrier requesting disclosure of the policy limits
2. Write a Demand for the Precise Amount of the Policy Limits with a Precise Expiration Date
Insurance companies have no fiduciary duty to honor any settlement proposal where the demand is for more than the amount of their insured’s liability limits. To the contrary, they have a fiduciary duty to protect their insured by defending all demands that exceed the liability limits their insured is covered for. Hence, when writing the demand, the cautious attorney must specifically state that the offer is for the full amount of the defendant’s policy limits, not a penny more. Insurance companies don’t have a duty to settle for more than the policy limits. One common problem I have seen in cases where I worked with other attorneys is the case where there is a single limits liability policy and there are multiple plaintiffs involved. In this situation, it is important to secure the cooperation of the other plaintiffs to enter into an agreement as to what the division of the policy limits should be. Then, once the agreement is made, all plaintiffs’ counsel should make a joint policy limits demand so that the insurer cannot escape their fiduciary duty to settle by arguing that by settling for the policy with one plaintiff, they are exposing their insured to potential financial jeopardy to the remaining plaintiffs.
Further, make sure to insert an express and specific expiration date in your policy limits demand. Basic principles of contract apply here. Unless there is an express and specific expiration date as to the period of the offer, an insurance company may treat the policy limits demand as an open offer without time limitation and acceptance can be made anytime. Thus, you might potentially find yourself going through a lengthy and costly trial and obtaining an excess verdict only to have the insurance company tender the full amount of the liability limits, claiming their fiduciary duty is discharge since there is now a binding contract based upon the principle of offer and acceptance. Hence, to avoid this potential scenario, make sure to provide a specific time expiration period.
In addition, make sure to give the insurance company sufficient time to evaluate the case. In my experience, the general rule is to give the insurance company at least 20 to 30 days to evaluate your policy limits demand. This is not a hard rule of thumb and can either be longer or shorter, depending on the circumstances. For example, if this is the first time the insurance company has the opportunity to review my client’s medical records and evidence, a reasonable jury who later sit on a bad faith lawsuit may view the short time period as not giving the insurer enough time to evaluate the case. Hence, it may be prudent to allow the insurer additional time or extend the expiration period if they ask. This make senses. Hence, if you give more than the average time period for them to review the claim, which is generally 30 days for an uncomplicated case, you show that you and your are acting reasonably to the judge or jury who later preside over the bad faith case.
Attached as Appendix 2 is an example of a policy limits demand to the insurance carrier requesting tender of the policy limits.
3. If the Insurer Balks or Refuses to Tender the Policy, Seek A Direct Settlement With the Defendant Through a Stipulated Judgment
The typical liability insurance policy imposes three obligations upon the insurance company: 1) the duty to defend, 2) the duty to indemnify, and 3) the duty to settle claims within the policy limits. The first two, the duty to defend and the duty to indemnify, are express covenants of the insurance policy. These duties require the insurance carrier to defend the insured in any litigation involving a covered claim and to pay any judgment against the insured up to the policy limit. These duties ordinarily give the insurer the right to control the defense of the litigation and the right to make decisions regarding settlement within the policy limit.
In light of the insurer’s right to control both the defense and settlement of the claim, and the harm that can result from an abuse of those rights, our courts imposed yet a third duty: to settle claims within the policy limit in certain situations. That duty is based on the covenant of good faith and fair dealing implied in all contracts. And when the duty to settle claims within the policy limits is breach, there is a long line of jurisprudence that holds that the insurance company no longer control the settlement process and the defendant has the right to independently and personally the lawsuit himself by entering a stipulated judgment either for the amount of the policy limits or for an amount above the policy limits.
Beginning with Evans v. Continental Cas. Co., 40 Wn. 2d 614, 245 P.2d 470 (1952), our Supreme Court held over 60 years ago the following:
“An insured can recover from his insurer the amount of a judgment rendered against him, including the amount in excess of the policy limits, when the insurer has been guilty of bad faith in failing to effect a settlement for a smaller sum. In some jurisdictions the insured can recover for negligence of the insurer in failing to effect a settlement. 8 Appleman, Insurance, 80, § 4713. Douglas v. United States Fidelity & Guaranty Co., 81 N.H. 371, 127 A. 708, 37 A.L.R. 1477. The courts are not in agreement in holding the insurer liable for negligence in failing to settle, but there is no disagreement with respect to the insurer's liability where bad faith appears. McCombs v. Fidelity & Casualty Co. of New York, 231 Mo.App. 1206, 89 S.W.2d 114. See Burnham v. Commercial Casualty Ins. Co., 10 Wash.2d 624, 117 P.2d 644.
Evans v. Continental Cas. Co., 40 Wn. 2d at 628.
The Evans Court also held that
“...while there is no question concerning the insurer's liability for the entire amount of a judgment where it has been guilty of bad faith, the question remains: Should an insured be permitted to settle the tort claims under such circumstances and then recover from the insurer the amount paid in settlement together with his reasonable attorney fees and expenses? We are of the opinion that the insured should recover the amounts so paid, up to the policy limits, provided that such sums were reasonable and were paid in good faith.”
This has been the recognized legal axiom in Washington. For example, in Besel v. Viking, 46 Wn.2d 730, 737, 49 P.3d 887 (2002), the plaintiff made a demand for policy limits of $25,000. The insurance policy in effect provided for a 25,000 per person/$50,000 per accident. Viking Insurance refused to settle Besel's claim because they contended that the combined claims of the three passengers injured by their insured might exceed the total coverage limits of $25,000 per person/$50,000 per accident. The plaintiff then settled his claim against the defendant through a stipulated judgment of $175,000 where the defendant would assign all of his claims against Viking Insurance to the plaintiff, in return for a covenant not to execute. The covenant judgment was expressly contingent on a finding and entry of an order of reasonableness consistent with criteria established in Chaussee v. Maryland Casualty Co., 60 Wn. App. 504, 803 P.2d 1339 (1991). After a reasonableness hearing where the stipulated judgment was approved, Viking Insurance tendered the policy limits to Besel. Besel then filed suit against Viking for negligence, breach of contract, bad faith, negligent and/or fraudulent misrepresentation, violation of the Consumer Protection Act (CPA) and the tort of outrage, and sought $150,000 in satisfaction of the unpaid balance of the judgment entered against Ralston. The trial court dismissed Besel’s entire claim. The Court of Appeals reversed the trial court on the bad faith claim holding, as a matter of law, Viking had acted in bad faith. The Court of Appeals also decline to decide if the appropriate measure of damages was the amount of the stipulated judgment. Besel sought review in the Supreme Court, which held that if an insurer acts in bad faith by refusing to effect a settlement for a small sum, an insured can recover from the insurer the amount of a judgment rendered against the insured, even if the judgment exceeds contractual policy limits. The Court additionally held that an insured may independently negotiate a settlement if the insurer refuses in bad faith to settle a claim.
“We have long recognized if an insurer acts in bad faith by refusing to effect a settlement for a small sum, an insured can recover from the insurer the amount of a judgment rendered against the insured, even if the judgment exceeds contractual policy limits. Evans v. Cont'l Cas. Co., 40 Wn.2d 614, 245 P.2d 470 (1952). This is the majority rule in the United States. See Stephen S. Ashley, Bad Faith Actions: Liability and Damages sec. 8:03 (2d ed. 1997); 14 Lee R. Russ & Thomas F. Segalla, Couch on Insurance sec. 204:4 (3d ed. 1999); 1 Allan D. Windt, Insurance Claims & Disputes: Representation of Insurance Companies and Insureds sec.sec. 5:12, 5:13, 5:21 (4th ed. 2001).
The same rule applies when an insured settles in similar circumstances. An insured may independently negotiate a settlement if the insurer refuses in bad faith to settle a claim. In such a case, the insurer is liable for the settlement to the extent the settlement is reasonable and paid in good faith. Evans, 40 Wn.2d at 628. Because the insured in Evans did not cross appeal from the trial court's ruling limiting his recovery to policy limits, we did not address the issue of an insurer's liability for settlement amounts in excess of policy limits. Nonetheless, Evans has been read to hold ‘that, when an insurer refuses, in bad faith, to settle a tort claim asserted by an injured party, the insured could settle the tort claim against him, which far exceeded his liability coverage, and recover from the insurer the amount paid in settlement in excess of the limits of the policy.’ Murray v. Aetna Cas. & Surety Co., 61 Wn.2d 618, 620-21, 379 P.2d 731 (1963).”
In reaching its conclusion, the Court relied on an earlier decision in Safeco Insurance Co. of Am. v. Butler, 118 Wn.2d 383, 823 P.2d 499 (1992). There, the insurance company tendered a defense under a reservation of rights. The defendant and the plaintiff reached a settlement through a stipulated judgment of $3 million, with the defendant assigning his first party rights to the plaintiff. In return, the plaintiff agreed not to execute the judgment against the defendant. On appeal, the insurance company argued that since the defendant/insured suffered no harm because no actual funds were paid by the defendant to the plaintiff, there was no bad faith. The Supreme Court firmly rejected this argument and held that there was a presumption of harm when an insurer refuses to settle a claim within policy limits. The Supreme Court further held that an “agreement not to execute does not preclude a showing of harm.” See Butler, 118 Wash.2d at 397. The Court reasoned that when an insurance carrier acts in bad faith, “it is in no position to argue that the steps the insured took to protect himself [or herself] should inure to the insurer's benefit.” Butler, 118 Wash.2d at 397, citing Greer v. N.W. Nat'l Ins. Co., 109 Wn.2d 191, 204, 743 P.2d 1244 (1987). Furthermore, the Court reiterated the general axiom of Washington jurisprudence that “a covenant not to execute coupled with an assignment and settlement agreement is not a release permitting the insurer to escape its obligation. [citing Kagele v. Aetna Life & Cas. Co., 40 Wn. App. 194, 198, 698 P.2d 90 (1985)]. Furthermore, “a covenant not to execute coupled with an assignment and settlement agreement does not release a tortfeasor from liability; -it is simply an agreement to seek recovery only from a specific asset-the proceeds of the insurance policy and the rights owed by the insurer to the insured.” Butler, 118 Wn. 2d at 399.
What these cases boil down to is that if the insurer refuse to tender their limits once a policy limits demand is served on them, the next practical step to take is to remove them from the settlement loop and go directly to the defendant, through his counsel, to seek a stipulated judgment whereby the defendant will assign his/her first party claims against the insurer in exchange for a covenant not to execute. By taking this step, you are not only exerting pressure on the insurer, but your effectively availing yourself of the opportunity to “open the limits” of the insurer by later binding them to a significant excess verdict that you and the defendant can agree to.
4. What to Do at the Reasonableness Hearing
Securing the defendant’s cooperation for a stipulated judgment and assignment of claims completes only part of the process. The next step is to schedule and conduct a reasonableness hearing with a judge. Indeed, RCW 4.22.060 expressly provides for a reasonableness hearing after a settlement has been reached between the parties. As the Supreme Court recently explained in Bird v. Best Plumbing Group LLC, 287 P. 3d 551, 175 Wn. 2d 756 (2012):
“If the amount of the covenant judgment is deemed reasonable by a trial court, it becomes the presumptive measure of damages in a later bad faith action against the insurer.”
However, the insurer still must be found liable in the bad faith action and may rebut the presumptive measure by showing the settlement was the product of fraud or collusion. Mut. of Enumclaw Ins. Co. v. T&G Constr., Inc., 165 Wn.2d 255, 264, 199 P.3d 376 (2008). Fraud and collusion is not an easy task for an insurer to accomplish. As Justice Fairhust’s opinion for the majority in Bird noted,
“Covenant judgments are determined reasonable under RCW 4.22.060. We have recognized an insured defendant may independently negotiate a pretrial settlement if the defendant’s liability insurer refuses in bad faith to settle the plaintiff’s claims. Besel v. Viking Ins. Co., 146 Wn.2d 730, 736, 49 P.3d 887 (2002). This protection for the insured augments another well-established rule: ‘[I]f an insurer acts in bad faith by refusing to effect a settlement for a small sum, an insured can recover from the insurer the amount of a judgment rendered against the insured, even if the judgment exceeds contractual policy limits.’ Id. at 735”.
Upon agreement with the defendant, the plaintiff should immediately secure a reasonableness hearing with the court. There are nine factors the trial court must consider to determine if a stipulated judgment is reasonable:
(1) the releasing party’s damages;
(2) the merits of the releasing party’s liability theory;
(3) the merits of the released party’s defense theory;
(4) the released party’s relative fault;
(5) the risks and expenses of continued litigation;
(6) the released party’s ability to pay;
(7) any evidence of bad faith, collusion, or fraud;
(8) the extent of the releasing party’s investigation and preparation; and
(9) the interests of the parties not being released.
Chaussee v. Maryland Cas. Co., 60 Wn. App. 504, 512, 803 P.2d 1339, 812 P.2d 487 (1991). No one factor controls and the trial court has the discretion to weigh each case individually. Chaussee v. Maryland Cas. Co., 60 Wn. App. at 512.
As a matter of practice, careful considerations should be made to notify the insurer of the settlement so that they can intervene and participate and at the reasonableness hearing. This will prevent them from later arguing that they were stymied from having any input or being denied a meaningful opportunity to be heard. As the Court in Royal Specialty Underwriting v. Howard, 121 Wn.App. 372, 89 P.3d 265 (2004) held, if the insurer had adequate notice and a meaningful opportunity to be heard, a reasonableness determination can be conducted in the personal injury action.
“Here, an injured plaintiff entered into a settlement, which included a covenant not to execute, with the defendant, who assigned its rights against its insurer to the plaintiff. The trial court determined that the settlement was reasonable. The insurer seeks reversal of the trial court's reasonableness determination, arguing that the personal injury action was not the proper forum for this determination. We affirm the finding of reasonableness because (1) the personal injury action was a proper forum for the reasonableness determination, (2) the insurer had adequate notice, (3) the insurer had a meaningful opportunity to be heard, and (4) the settlement amount was reasonable.”
Royal Specialty Underwriting, 121 Wn.App. at 373.
The hearing often resembles a mini-trial or an arbitration hearing. Important materials and items that should be included in the motion to approve the reasonableness of the settlement are:
1. Declarations from physicians and/or experts to support damages;
2. Declarations from lay witnesses;
3. Declarations from attorneys to support the reasonableness of the settlement;
4. A list of the depositions and pleadings in the suit;
5. A detailed analysis as to why the settlement is appropriately valued
Upon evaluating the evidence presented, the judge may either approve the settlement as reasonable or possibly reduce the amount considered reasonable. See Royal Specialty Underwriting v. Howard, 121 Wn.App. 372, 89 P.3d 265 (2004).
As the Bird opinion makes clear, the reasonableness hearing is conducted before a judge and the insurer has no right to demand a jury trial or a jury to determine the reasonableness of the award. For example, in Bird, the parties entered a stipulated judgment for $3.75 million dollars. The subsequent reasonableness hearing was conducted over four days and was fiercely contested by the insurer, resulting in a trial court record exceeding 3,000 pages. After evaluating the damages claims, the trial court trebled the amounts, then discounted by 25 percent based on a “trebling claim risk,” and arrived at a total figure of $3,989,914.83. Therefore, the court concluded the parties’ $3.75 million settlement was reasonable. Farmers then appealed, arguing that it was constitutionally entitled to a jury trial to determine the reasonableness of the settlement. The Supreme Court eventually held that “an insurer does not have a constitutional right to a jury trial on the reasonableness of a covenant judgment under RCW 4.22.060.” The Court also held that any danger of a collusive or fraudulent settlement can be addressed by a trial court during a reasonableness hearing.
“We have equally acknowledged the danger for collusive or fraudulent settlements but concluded the reasonableness determination “protect[s] insurers from excessive judgments especially where . . . the insurer has notice of the reasonableness.” [citing Besel v. Viking, 146 Wn.2d at 739].
Once a figure has been established as reasonable, the plaintiff can have the defendant to assign the first party claims against the insurer in return for a covenant not to execute. However, Washington practitioners should note that there is one very recent appellate case out of Division I that favorably holds a stipulated judgment entered does not act as a ceiling, but rather as a floor, to the ultimate amount of damages in a subsequent bad faith action against the insurer. This means that a stipulated judgment entered represents not the total amount of damages that may be sought in a bad faith action, but only acts as the minimum amount of damages that can be recoverable. See Miller v. Kenny, 325 P.3d 278, 291 (2014).
The primary ruling in Miller v. Kenny is that a stipulated judgment with covenant not to execute constitutes the floor rather than ceiling of damages recoverable from a third party liability insurer on the ultimate assigned bad faith claims. This is different than what Washington law had been previously in this area.
There, the plaintiff and several passengers suffered injury in a collision. Safeco insured Peterson, the owner of the car the at-fault driver was operating at the time the plaintiff was injured. Safeco policy had $500,000 in underlying limits and $1,000,000 in umbrella limits. The other three occupants of the car sued the driver for their injuries. Safeco agreed to defend the driver without reservation. The claimants made a policy limits demand on Safeco and a month later, the assigned defense counsel recommended to Safeco that it tender its $1,500,000 limits into the court registry. However, Safeco tendered only its $500,000 primary limits. Safeco finally tendered the additional $1,000,000 seven months later, by which time, the driver and the claimants had retained personal counsel and they refused to release Safeco in exchange for its tender of the limits.
Through personal counsel, the plaintiff passengers settled with the driver and agreed to entry of judgment against the driver with a covenant not to execute for an amount to be later determined. Safeco intervened before the reasonableness hearing. However, Safeco did not oppose the reasonableness determination and agreed entry of a $4,150,000 judgment was reasonable. The plaintiffs, as assignees, then sued Safeco for bad faith, violation of the Consumer Protection Act, negligence, and breach of contract. At trial, the court instructed the jury to consider the $4,150,000 as the minimum amount of damages to consider plus additional elements of damage to the assignor defendant. The court also instructed the jury that it was Safeco’s burden to prove that Kenny did not suffered such damages. Ultimately, the jury awarded $11,900,000 to the plaintiffs, which includes $7,750,000 on top of the $4,150,000 stipulated judgment that was agreed to by the parties.
Afterwards, the trial court additionally awarded $1,100,000 in damages on one of the assigned UIM claim, $7,000,000 in prejudgment interest, post-judgment interest at 12 percent, $1.7 million dollars in attorney fees and costs, and treble damages under the CPA. The total judgment came to $21,837,286.73. This amount was in addition to the $1,800,000 the claimants had already received under the insurance policies. Safeco appealed.
Safeco was stunned when Division I of the Court of Appeals affirm the award and held that the stipulated judgment of $4,150,000 acted only as the “presumptive” floor of damages in a bad faith case. The Court relied on the Besel v. Viking decision to reason that
“Safeco argues that Besel limits recovery to the amount of a reasonable covenant judgment—which in this case was the $4.15 million established by the order to which Safeco stipulated in May 2005...
According to Safeco, where Besel says the amount of a covenant judgment is ‘the presumptive measure of an insured's harm,’ it means that the insured's damages for the tort of bad faith are limited to the amount of damages the insured caused to the third party, as measured by the covenant judgment. As we read Besel, however, the reference to the ‘presumptive’ measure of harm is not a limitation. It does not appear that Besel claimed Viking's bad faith conduct caused the driver any damages other than liability for the judgment, so there was no reason for the court to announce a rule barring Besel, as the driver's assignee, from recovering additional damages personal to the driver. When Besel is read in context with the Court of Appeals decision that it reversed, the proper interpretation of the above-quoted paragraph is that harm to the insured is presumptively worth at least the amount of the covenant judgment— not less. The Supreme Court implicitly confirmed this interpretation by explaining in a recent case that ‘in the insurance setting, the presumptive amount is added to any other damages found by the jury.’ Bird v. Best Plumbing Group. LLC. 175 Wn.2d 756, 770, 287 P.3d 551 (2012). The holding of Bird is that a reasonableness hearing is an equitable procedure. The court stated, ‘Here, there is no factual determination to be made on damages in the later bad faith claim, at least not with respect to the covenant judgment." Bird, 175 Wn.2d at 772 (emphasis added). This sentence indicates the way is open for a jury to make a factual determination of an insured's bad faith damages other than and in addition to the covenant judgment.
My understanding is that Safeco filed a petition for certiorari with the Washington Supreme Court and consequently, the exact outcome is still unknown on appeal. However, if Miller v. Kenny is upheld, this would constitute significant new ammunition for the plaintiff’s attorney to exact more pressure from the insurer to settle.
5. What to Do If the Defendant Refuses to Provide an Assignment After An Excess Verdict
Even the best plan can still fail to persuade the defendant to agree to a stipulated judgment. Some defendants have been so persuaded by their insurance company that your case is frivolous or that your damage claims is excessive that they are emotionally attached to the case and are willing to overlook their own personal exposure. It has been my experience that after the trial is completed and an excess judgment entered that most of these defendants will often start worrying about their financial exposure. In many instances, they reached out to the insurer and some of these insurers have decided to pay the judgment rather than risk a potential bad faith claim against them. However, there are those insurers that deliberately choose to leave their insureds hanging on the rope without taking any proactive steps to protect their insured. In these instances, it is important to initiate immediate supplemental proceedings against the defendant. Usually, what occurs is that the defendant will hire independent or personal counsel to intervene on their behalf. This becomes a golden opportunity to start fruitful discussion with the defendant, through his/her counsel, to procure the assignment of their first party claims against their insurer in exchange for a covenant not to execute.
I have found the post-judgment deposition of these defendants to be revealing and very helpful. I have learn that certain insurance companies have outright lied to these defendants about the facts of my case and withheld important settlement offers and discussions that occur. These same defendants have told me they were told by these insurers that our case was either frivolous or that our demands were preposterous when such was not the case. I also learn that these insurers would tell their insureds that “they were in good hands” or that their insurance company “got their back.” Yet, once the judgment was entered, ignored them. For example, in one instance, the defendant told me that her insurance company told her they would pay for a bankruptcy lawyer to help her file bankruptcy. In another instance, the insurance company would attempt to “buy out” any bad faith claims the defendant has against them. Obviously, these are valuable information to have once you are able to procure the assignment and go after the insurance company.
The suggestions that I make here are not intended to be suggestive. However, they serve as strong starting points and steps that you can take to proactively take the initiative and obtain meaningful recovery for your client.