Sarah Gosney, Res/cross-apps. v. Fireman's Fund Ins. Co., Apps/cross-res. , 419 P.3d 447 ( 2018 )

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
SARAH GOSNEY, as assignee and as
Personal Representative of the DIVISION ONE
Estate of Jerry Welch; JOHN VOSE,
PIZZA TIME INC., and PIZZA TIME No. 74717-7-1
HOLDINGS OF WASHINGTON, INC., (consol. with No. 74812-2-1
and No. 74813-1-1)
Respondents/Cross Appellants,
PUBLISHED OPINION
v.
FIREMAN'S FUND INSURANCE
COMPANY and THE AMERICAN
INSURANCE COMPANY,foreign
insurance companies,
Appellants/Cross Respondents. FILED: May 31, 2018
DWYER, J. — Following a five-week trial, the jury returned its special
verdicts. After the jury was dismissed, it became apparent that the parties
disagreed as to what exactly the jury had been asked and what its answers
meant. The trial judge, based on his understanding of what he had asked the
jury to decide, entered a significant judgment in favor of plaintiff Gosney.
However, applying judicial estoppel, the judge declined to enter judgment on the
jury's verdicts in favor of plaintiffs Vose and Pizza Time.
No. 74717-7-1/2
Defendant Fireman's Fund appeals from the judgment entered against it
and in favor of Gosney. Vose and Pizza Time cross-appeal from the trial court's
denial of relief. For good measure, all parties seek relief from various other trial
court rulings.
We reverse the trial court's judicial estoppel rulings. In all other respects,
we affirm the various decisions of the trial court.
1
John Vose is the owner and sole shareholder of Pizza Time, Inc. and
Pizza Time Holdings of Washington, Inc.(collectively PT). Vose owns and
operates several corporate PT stores and also acts as a franchisor with 30 to 35
frahchise0s. As the franchisor, Vose personally prepared operational manuals
for his franchises that were then incorporated into the franchise agreement by
reference. These operational manuals purported to give Vose control over
various aspects of franchisee employment procedures, including the right to
terminate franchisee employees for any reason at any time.
Ethan Shaefer owned and operated a PT franchise store prior to and
following Vose's acquisition of the PT franchise. Unbeknownst to Vose, one of
Shaefer's pizza delivery drivers—Angela Heller—had a poor driving record and a
criminal background. On September 1, 2005, Heller, who had been drinking on
the job, drove her car across the center line while making a delivery. Heller
caused a head-on collision and killed the driver of the other car, Jerry Welch.
Vose visited Shaefer shortly after receiving word of the collision. Shaefer told
Vose that he had called his attorneys and that he had insurance.
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No. 74717-7-1/3
In September 2006, Jerry Welch's widow filed suit against PT in Thurston
County. Sarah Gosney—Welch's daughter—was later substituted as the
personal representative and plaintiff in the underlying action.' Vose's attorney
informed him that, pursuant to the franchise agreement, Shaefer would have to
indemnify and defend PT.
PT has had insurance through Fireman's Fund Insurance Company
(Fireman's) since 2005. PT's insurance policy required Fireman's to indemnify it
for up to $1.5 million pursuant to a "non-owned auto policy" and an additional $1
million pursuant to a "general liability policy."
Vose first informed Fireman's of the automobile collision and ongoing
litigation on January 31, 2008. Gosney had extended an offer to PT and Shaefer
to settle for policy limits. Trial was scheduled for April 21, 2008. Fireman's
began investigating coverage and liability on February 8, 2008. On February 21,
2008, Gosney's counsel, David Beninger, wrote to Robert Novasky, counsel for
both Vose and Shaefer, to notify Novasky that Gosney's offer to settle would
remain open for only seven more days. Novasky forwarded this letter to Paul
Badaracco, Fireman's primary claims handler assigned to the matter, for
resolution.
On February 22, 2008, Badaracco wrote to Vose to acknowledge receipt
of his claim. Badaracco noted that "[a]lthough this incident occurred on Sept 1,
2005 and the lawsuit was filed on Sept 14, 2006, Fireman's Fund's first notice of
1 We refer to the Welch estate as "Gosney."
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No. 74717-7-1/4
this claim and ongoing litigation was... on Feb. 8, 2008, some two and a half
years after the accident."
Novasky wrote to Badaracco again on February 28, 2008. Novasky stated
that laillother defendants have tendered their policy limits, but plaintiff is
demanding a 'global' settlement that requires the tender of all available policy
limits." Novasky requested that Fireman's contact Beninger to confirm Fireman's
position with regard to the demand.2
Fireman's appointed counsel John Matthews of Jackson & Wallace, LLP
to defend PT. Matthews contacted Novasky to discuss the case and review court
documents. Matthews then contacted Vose and received his approval to request
a continuance of the trial date. Trial was rescheduled for December 29, 2008.
Gosney withdrew the global settlement offer as a result of the continuance.3
On March 27, 2008, Badaracco wrote to Vose to inform him that PT's
coverage for nonowned business automobile exposure covered up to $1.5
million4 in losses and that the current claim "could result in damages in excess of
2 Just one day prior to receiving this letter, Fireman's had internally concluded that it was
not prejudiced by the late notice and that it had a duty to defend PT in the underlying action.
3 Badaracco did not inform Vose that continuing the trial date would result in the
withdrawal of the settlement offer. Gosney's expert witness testified:
Well, this gets to the proposition that by continuing the case, you are rejecting the
settlement offer. So at that point it's a choice. You have got to decide what you
want to do. But the consequences of continuing means that the chances for[PT]
and Mr. Vose to get settled within limits is going to be withdrawn. So my belief,
my opinion, based on the Washington standards, are [that] they have to tell the
insured and get the insured's choice. Do you want us to file for a continuance or
do you want us to accept the settlement?
... I'm not sure that Mr. Vose has any idea that the settlement was going to be
withdrawn, if he files for the continuance. I didn't see anything where that was
explained to him to say if we do this the settlement offer is gone, and we can't tell
you whether it'll ever come back.
4 As discussed herein, the policy actually provided a total of $2.5 million in coverage.
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No. 74717-7-1/5
.. . policy limits." Badaracco advised Vose to retain counsel to advise him "with
respect to any potential excess exposure above the referenced limits."
Patricia Anderson, an attorney representing Gosney, later contacted
Fireman's to request a copy of the PT insurance policy. On July 17, 2008,
counsel for Fireman's sent Anderson a copy of the policy and confirmed that
Fireman's "continues to reserve any and all rights and defenses that may now
exist or that may arise in the future." Anderson then contacted Howard Bundy,
corporate counsel for PT. Anderson told Bundy that Gosney was interested in
reaching a settlement and was willing to discuss a settlement "involving an
agreement or covenant not to execute against personal assets, in exchange for
an assignment of the claims against the insurance company and a stipulated
judgment."
Bundy, who had not represented Vose or PT on any matter related to the
Gosney litigation, advised Vose to retain independent counsel. Vose then
forwarded the settlement offer to attorney Matthews. Matthews asked Bundy to
"please forward these emails and offers to the counsel that[PT] and/or John
Vose hires to represent him personally on this coverage issue, as we cannot
advise our client on coverage matters." Bundy then agreed to represent Vose in
the Gosney litigation.
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No. 74717-7-1/6
Settlement
Gosney and Vose reached a settlement on September 2, 2008.5 The
settlement offer required Vose and PT to assign to Gosney "all rights, privileges,
claims, causes or chose of actions that they may have against their insurer,"
including any arising out of the "handling of the claims or suit related thereto, as
well as arising out of the insurance contract, obligations, investigation,
evaluation, negotiation, defense, settlement, indemnification... bad faith,
negligence, malpractice, breach of contract, fiduciary breach, Consumer
Protection Act[6 (CPA)], Insurance Fair Conduct Act[7 (1FCA)], punitive damages
and/or otherwise." The settlement offer reserved to Vose and PT all elements of
damages "for their personal emotional distress, personal attorneys' fees,
personal damages to credit or reputation and other non-economic damages"
arising from the assigned causes of action.
The settlement offer did not specify a dollar amount. Rather, it provided:
Defendants do hereby stipulate and agree to having partial
judgment entered against them for the full insurance limits to avoid
any delay in executing, garnishing or collecting those offered
assets. Plaintiffs agree to withhold formal entry of this partial
judgment for fifteen (15) days to allow the insurers to pay all
insurance proceeds to the Luvera Trust Account, in trust for the
Welchs. Defendants are entitled to a credit, offset and partial
satisfaction of any judgment for the amounts paid by their insurers.
Further, the parties agree to have the full amount of the
damages and/or judgments determined by stipulation approved as
reasonable by the Court, or arbitration. The parties agree to use
good faith efforts to reach a stipulated covenant judgment,
contingent upon a reasonableness finding by the court. . . .
5 Gosney and Shaefer apparently reached a separate settlement. The record before us
does not disclose either the timing or terms of that settlement.
6 Ch. 19.86 RCW.
7 RCW 48.30.010-.015.
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No. 74717-7-1/7
The settlement offer further provided for a 12 percent interest rate
accruing and compounding annually on the unpaid damages from the date of
signing. Finally, the settlement offer contained a covenant not to execute or
enforce the judgment against Vose or PT.
Gosney and Vose—on behalf of himself and on behalf of PT—signed the
settlement agreement. Bundy then sent a copy of the settlement agreement to
Fireman's along with a letter demanding the payment of policy limits and notice
under the IFCA. Fireman's never responded to Bundy and never agreed to the
settlement offer.
On December 19, 2008, Thurston County superior court Judge Gary
Tabor entered judgment against Vose and PT for $2.5 million with interest
accruing at 12 percent per annum from September 2, 2008. Judge Tabor also
issued an order approving the settlement as reasonable as to Welch's minor
children. Jackson & Wallace filed a notice of intent to withdraw effective January
29, 2009.
On September 1, 2009, Gosney filed suit against Fireman's and named
PT and Vose as codefendants. The complaint alleged negligence, breach of the
CPA, breach of the IFCA, breach of contract, and breach of the specific unfair
claims and settlement practices regulation.8 In its answer, Fireman's asserted
the affirmative defenses of waiver and estoppel, contributory fault, and fraud or
collusion in the settlement.
8 WAC 284-30-330.
7
No. 74717-7-1/8
Arbitration
On November 1, 2010, Fireman's moved to stay the action "until Plaintiffs
and Defendant[PT] conduct and conclude their arbitration to determine the final
value of the settlement in their underlying litigation." Fireman's argued that a
stay was necessary because
[Fireman's] cannot effectively defend itself in this lawsuit
without resolution of the underlying settlement amount, which, if
proven reasonable, will form the "presumptive measure of
damages" in this lawsuit. [PT] claims it cannot provide [Fireman's]
written discovery responses ... without jeopardizing its position in
the eventual arbitration of the settlement amount. This leaves
[Fireman's] in a litigation quandary, precluding [Fireman's] ability to
prepare for and receive a fair trial.
King County Superior Court Judge Laura Inveen granted Fireman's motion
to stay on November 30, 2010. The stay was granted pending the final
determination of damages by either "stipulated amount approved as reasonable
by the court," or "final arbitration decision."
Gosney and Vose decided to enter arbitration. On September 17, 2012,
Beninger notified John Bennett, outside counsel representing Fireman's, of the
date and time of the arbitration. Arbitration was scheduled for November 1,2012
before former King County Superior Court Judge Charles Burdell.
Beninger described the scope of the arbitration as "all remaining issues."
Bennett responded to the notice asking what the "remaining issues" included.
On October 4, 2012, Bennett again wrote to Beninger asking "what issues the
parties intend to arbitrate." Bennett stated that "[t]ime is of the essence if
Fireman's Fund is to make an informed decision whether to participate in the
arbitration and to prepare to participate," and demanded that Beninger respond
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No. 74717-7-119
by the following day. Beninger responded simply that "[t]he issues subject to
arbitration are broad."
Bennett wrote to Beninger on October 9, 2012, declining to participate in
the arbitration. Bennett explained,
As I am sure you understand, Fireman's Fund cannot
reasonably participate in an arbitration when it does not know what
will be arbitrated. Your response that the issues to be arbitrated
are "broad" does not provide the information Fireman's Fund needs
to be able to participate in the arbitration.
Also, Fireman's Fund is concerned that defendants have
shared with plaintiff all confidential information relating to matters at
issue in the arbitration, which would preclude any potential for a fair
hearing of the matters in dispute. Your response ignores that
concern.
Bennett extended an offer to pay for a transcription of the arbitration.
Beninger replied, "It seems like you are trying to generate reasons to avoid the
arbitration, rather than participate in good faith. Please keep in mind that you
moved the court and compelled the arbitration of all remaining issues." Beninger
rejected the offer to pay for transcription of the arbitration. In response, Bennett
asserted that Fireman's had no good faith duty to participate in the arbitration as
Fireman's was not a defendant and the arbitration was not a reasonableness
hearing.9
Following the arbitration, Judge Burdell valued Gosney's claim at
$10,800,289. Judge Burdell found that PT and Vose were jointly liable for the
damages, that there was no bad faith, collusion, or fraud between the settling
9 Although Beninger declined to elaborate on the topics to be arbitrated in his
correspondence with Bennett, Beninger did discuss the arbitration with Bundy. On October 29,
2012, Beninger provided a nonexclusive list of the arbitration topics to Judge Burdell. The topics
included liability, total damages, contributory fault, fraud/collusion or bad faith, and the
"reasonable amount of covenant judgment." Beninger did not provide Fireman's with this list.
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No. 74717-7-1/10
parties, and that the damages award was a reasonable covenant judgment
amount. Judge Burdell further found that Fireman's had "notice and opportunity
to participate, submit evidence and be heard." The award caption included
Fireman's as a party.
The arbitration proceeding was unusual and is one of the most
contentious subjects in this proceeding. King County Superior Court Judge Sean
O'Donnell summarized some of the arbitration oddities:
Mr. Vose admitted personal liability (pursuant to the settlement
agreement) when he was not named in the lawsuit brought by Mr.
Welch's estate. Prior to reaching an amount for damages and prior
to the arbitration, Mr. Bundy... turned over the confidential
Jackson Wallace attorney file to Mr. Benninger [sic](at Mr.
Benninger's [sic] insistence). Mr. Bundy and Plaintiffs' counsel
discussed the issues to be arbitrated well in advance of the
hearing, and Mr. Bundy even provided Mr. Benninger [sic] with
favorable case law prior to appearing before Judge Burdell.
At the arbitration hearing itself, Mr. Bundy failed to submit his
own trial brief, he failed to'call a single witness to testify, he failed to
offer his own exhibits, he failed to call an expert in franchisor
liability, and he agreed that Ms. Heller(the driver who killed Mr.
Welch) was an employee of Pizza Time (the franchisor) when, in
fact, Ms. Heller only worked for the franchisee. He also was silent
to the fact that Fireman's Fund was listed in the caption of the
arbitration brief(and other pleadings) as a party, when Fireman's
Fund was not. Neither he nor Mr. Benninger [sic] made any effort
to correct this error before Judge Burdell.
Additionally, Mr. Bundy failed to contest the difference
between the damages award and the reasonableness
finding/amount entered by Judge Burdell. The corollary to that
concession is that Mr. Bundy agreed that Fireman's was liable for
the total damage amount, with no discount afforded to Mr.
Vose/Pizza Time for issues related to franchisor liability. Finally,
the hearing was truncated, lasting only a matter of hours.
On November 16, 2012, Thurston County Superior Court Judge Thomas
McPhee determined that the arbitration award was reasonable and entered
judgment against Vose and PT for $10,800,289 (hereinafter "underlying
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No. 74717-7-1/11
judgment"). The judgment included pre- and postjudgment interest accruing at
the rate of 12 percent compounded annually from September 2, 2008 until paid.1°
On April 12, 2013, Judge Tabor granted Fireman's motion to remove its name
from the caption of the arbitration award. Judge Tabor granted the requested
relief but wrote on the order, "Court makes clear this does not affect the award or
goes to any of the merits or repercussions of the award."
On August 23, 2013, Fireman's moved for partial summary judgment in
this action, asserting that "(1) as a matter of law Fireman's Fund is not bound by
the arbitration award and judgment obtained against Nose and PT]and that,
therefore;(2) Plaintiffs' claim against Fireman's Fund for the amount of the
arbitration award should be dismissed." King County Superior Court Judge
Timothy Bradshaw denied the motion.
On November 26, 2013, Judge Bradshaw entered an order preventing
Fireman's from deposing Beninger. On January 27, 2014, Judge Bradshaw
entered an order "to preclude attempts to relitigate the underlying Thurston
County wrongful death action, issues and judgment."
Trial
Judge O'Donnell presided over a five-week jury trial in April and May
2015. At the close of Plaintiffs'11 case, Fireman's moved for judgment as a
matter of law pursuant to CR 50(a). Fireman's argued that the covenant
judgment was the result of fraud and collusion, that Fireman's had not harmed
10 Judge McPhee noted that Fireman's was given notice of the arbitration and refused to
participate. Fireman's is not listed as a party in the caption of the judgment.
11 We refer to Gosney, Vose, and PT collectively as "Plaintiffs."
No. 74717-7-1/12
Vose, and that Vose was judicially estopped from recovering damages because
of his failure to disclose his claim during a prior bankruptcy proceeding. The trial
court denied Fireman's motion but reserved ruling on the issue of judicial
estoppel.
The jury was asked to resolve five claims: negligence, breach of contract,
breach of the CPA, breach of the IFCA, and breach of the duty of good faith. The
jury was instructed on Fireman's affirmative defenses of fraud, collusion, excuse
of performance by estoppel, and excuse of performance by waiver.
At trial, Plaintiffs argued various violations of the duty of good faith. The
jury was instructed that an insurer "that refuses to defend in good faith voluntarily
forfeits its ability to protect itself against a settlement in excess of policy limits
unless the settlement or arbitration is the product of fraud or collusion."
Instruction 22. The jury was further instructed:
An insurance company will be bound by the findings,
conclusions and judgment entered against their insured when it has
adequate notice and an opportunity to intervene in the underlying
action. The insurer is bound to what might, or should, have been
litigated as well as to what was actually litigated. An insurer is not
entitled to litigate factual questions that were resolved in the liability
case by judgment or arm's length settlement.
This instruction applies only in the absence of fraud or
collusion.
Instruction 38.
If you find that Fireman's failed to act in good faith by
breaching its duty to defend and/or settle, then the law presumes
that Plaintiffs Pizza Time and Mr. Vose were injured and that the
failure to act in good faith was the proximate cause of this injury.
You are bound by that presumption unless you find that Fireman's
failure to act in good faith did not injure Plaintiffs Pizza Time and
Mr. Vose.
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No. 74717-7-1/13
Fireman's bears the burden of proof that any failure to act in
good faith did not injure Plaintiffs Pizza Time and Mr. Vose.
Plaintiffs bear the burden of proving the amount of damages.
For all other claims that Fireman's failed to act in good faith,
Plaintiffs have the burden of proving each of the following
propositions:
(1) That Fireman's failed to act in good faith;
(2)That Plaintiff Pizza Time or Mr. Vose was damaged; and
(3)That Fireman's failure to act in good faith was a proximate
cause of Plaintiff Pizza Time's or Mr. Vose's damages.
If you find from your consideration of all of the evidence that
each of these propositions has not been proved, your verdict on the
claim of failure to act in good faith should be for Fireman's. On the
other hand, if each of these propositions has been proved, you
must consider Fireman's affirmative defenses.
Instruction 53.
If your verdict is for the Plaintiffs on their claim that
Fireman's Fund/American Insurance Company failed to act in good
faith, then you must determine the amount of money that will
reasonably and fairly compensate the plaintiffs for such damages
as you find were proximately cause[d] by Fireman's Fund/American
Insurance Company's failure to act in good faith.
If you find for the Plaintiffs on their claim that Fireman's
Fund/American Insurance Company failed to act in good faith as to
[the] duty to defend or settle, your verdict must include the amount
of the judgment on the arbitration award, unless you further find for
Fireman's Fund/American Insurance Company on its affirmative
defense that the settlement was the product of fraud or collusion.
The judgment amount is $10,800,289, plus interest.
Instruction 54.
The interrogatories on the special verdict form, and the jury's answers,
were as follows:
QUESTION la: Plaintiffs' Claims
Have the Plaintiffs proven all elements of any or all of their claims
as to the Defendants? (The elements of these claims are
described in the accompanying Jury Instructions.)
ANSWER: (Check "yes" or "no")
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No. 74717-7-1/14
Negligence X Yes No
Breach of Contract X Yes No
Breach of the Consumer Protection Act X Yes No
Breach of the Insurance Fair Conduct Act X Yes No
Breach of Duty of Good Faith X Yes No
QUESTION lb
If you answered "yes" to Question la as to Breach of Duty of Good
Faith, did you find a breach of the duty to defend or settle?
X Yes No
QUESTION 2: Contributory Negligence
QUESTION 2A: Have the Defendants proven that Plaintiffs were
contributorily negligent?
ANSWER (Check "yes" or "no")
Yes X No
QUESTION 3: Defendants' Defenses
Have the Defendants proven all elements of any or all of their
defenses? Answer each of the subparts below. (The elements of
these claims and defenses are described in the accompanying Jury
Instructions.)
ANSWER:(Check "yes" or "no")
Fraud Yes X No
Collusion Yes X No
Excuse of Performance by Estoppel Yes X No
Excuse of Performance by Waiver X Yes No
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No. 74717-7-1/15
QUESTION 4a: Damages
Based on the jury instructions, what amount of damages, if any, do
you find were incurred by Plaintiffs John Vose and Pizza Time?
(INSTRUCTION No. 1: Do not duplicate damages across multiple
claims.)
(INSTRUCTION No. 2: Do not reduce the damages for Negligence
for any contributory negligence you may find in Question 2. The
Court will determine that amount.)
Damages:
Negligence: $100,000.00
Breach of Contract: $20,000.00
Breach of Duty of Good Faith: $300,000.00
Breach of Consumer Protection Act: $20,000.00
Breach of the Insurance Fair Conduct Act: $20,000.00
Question 4b:
If you awarded damages in Question 4a, does the damages
amount include the judgment?
Yes X No
SUPPLEMENTAL QUESTION:
Of the damages identified in the Verdict Form in Question 4a, what
is the total dollar amount of damages incurred by Plaintiff John
Vose, as opposed to those incurred by Pizza Time?
$240,000.00
Following receipt of the jury's verdict, the trial court discharged the jury
and granted Plaintiffs' motion to prohibit contact with the jurors. Plaintiffs later
filed a presentation of judgment, asserting that the amount that should be
entered as the principal judgment amount, based on the jury's verdict, was
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No. 74717-7-1/16
$11,260,289. In response, Fireman's argued that the jury did not award the
amount of the underlying judgment and that, even assuming that it did, Fireman's
was not bound by that judgment.
The trial court agreed with Plaintiffs as to the legal effect of the jury's
verdict and entered judgment in favor of Plaintiffs.12 The trial court awarded
interest on the underlying judgment beginning from the date of entry of the
arbitration award. The trial court also concluded that Fireman's was estopped
from contesting the arbitration award. The trial court found that Fireman's had
sufficient notice of the arbitration hearing, that the arbitration hearing was
"actually litigated," and that Fireman's was in privity with Vose and PT at the time
of the arbitration hearing.
Fireman's then filed a motion for reconsideration. The trial court reviewed
the jury's special verdict and concluded:
The jury here made a factual determination of plaintiffs' bad
faith damages other than and in addition to the covenant judgment
in the amount of $300,000.00. The jury accordingly found harm as
a result of Fireman's. . . failure to act in good faith. But the
12 Little time was spent addressing the jury's finding that Fireman's had established its
defense of excuse of performance by waiver.
Plaintiffs argued to the trial judge that the "contractual concept of waiver of performance
expressed in the court's instructions has no application to plaintiffs' statutory claims, nor to the
tortious bad faith or negligence claims." Memo. in Supp. of Presentation of J. at 5. In response,
Fireman's appeared to agree that the finding was not of significance:"[The waiver finding is not
necessary, but it's certainly helpful. ... I think the waiver finding may, may be pertinent, but it's
certainly not necessary to uphold what the jury did and to uphold the specific amounts that they
found, were the damages proximately caused by Fireman's conduct." In its order entering
judgment in favor of Plaintiffs, the trial court addressed the jury's finding in a footnote:
The jury found that Mr. Vose/Pizza Time waived Fireman's Fund duty to provide
a defense. The jury made no mention of Fireman Fund's separate contractual
duty to settle. Nor does the jury's waiver finding implicate Fireman Fund's
independent statutory duty to settle (which the jury found Fireman's Fund
breached). Indeed, Plaintiffs correctly point out that breach of Fireman's
independent good faith duty to settle is grounded in tort and not contract law.
Fireman's has neither assigned error to the trial court's order with respect to the issue of
waiver nor has it otherwise discussed the jury's finding in its briefing.
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No. 74717-7-1/17
plaintiffs' floor on damages had already been determined by entry
of the Thurston County judgment (resulting from the
arbitration/reasonableness hearing). . .. As a matter of law, the
jury's apparent conflict in the verdict form (finding harm for the
breach of duty of good faith but not writing in the amount) must be
resolved to include the arbitration amount.
The trial court then addressed Fireman's judicial estoppel claim. Pursuant
to CR 50(a), Fireman's had moved to bar Vose from collecting on the jury's
damages award based on Vose's failure to disclose a potential claim against
Fireman's during a prior bankruptcy proceeding. The trial court agreed with
Fireman's and concluded that both Vose and PT were judicially estopped from
recovering damages.
The trial court entered judgment in favor of Gosney and against Fireman's,
awarding Gosney the amount of the underlying judgment and accrued interest
totaling $15,612,624.34. The trial court additionally awarded Gosney attorney
fees and costs totaling $2,484,542.50 and awarded Vose and PT attorney fees
and costs totaling $405,612.50. The trial court's awards of attorney fees and
costs included a lodestar multiplier of 1.25. Fireman's now appeals. Gosney,
Vose, and PT cross-appeal.
11
"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."
Besel v. Viking Ins. Co. of Wis., 146 Wash. 2d 730, 736, 49 P.3d 887(2002)(citing
Evans v. Cont'l Cas. Co., 40 Wash. 2d 614, 628, 245 P.2d 470 (1952)). Such a
settlement agreement typically involves three features: "(1) a stipulated or
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No. 74717-7-1/18
consent judgment between the plaintiff and insured,(2) a plaintiffs covenant not
to execute on that judgment against the insured, and (3) an assignment to the
plaintiff of the insured's coverage and bad faith claims against the insurer." Bird
v. Best Plumbing Grp., LLC, 175 Wash. 2d 756, 764-65, 287 P.3d 551 (2012)(citing
Besel, 146 Wash. 2d at 736-38). This type of settlement agreement is often referred
to as a covenant judgment. Bird, 175 Wash. 2d at 765.
"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." Bird, 175 Wash. 2d at 765 (citing Besel, 146 Wash. 2d at 738).
The insured can recover from the insurer "the amount of a judgment rendered
against the insured, even if the judgment exceeds contractual policy limits."
Miller v. Kenny, 180 Wash. App. 772, 799, 325 P.3d 278(2014). This is sometimes
referred to as the "'judgment rule." Miller, 180 Wash. App. at 799(quoting Besel,
146 Wash. 2d at 735). "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." Bird, 175 Wash. 2d at 765 (citing Mut. of Enumclaw
Ins. Co. v. T&G Constr., Inc., 165 Wash. 2d 255, 264, 199 P.3d 376 (2008)).
The propriety of this process has been considered and endorsed by our
Supreme Court.
Whether the insurer acts in bad faith by refusing to settle in
good faith or by refusing to defend, the consequences to the
insured are the same. The defense may be of greater benefit to the
insured than the indemnity. The defense must be prompt and
timely. An insurer refusing to defend exposes its insured to
business failure and bankruptcy. An insurer faced with claims
exceeding its policy limits should not be permitted to do nothing in
the hope that the insured will go out of business and the claims
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No. 74717-7-1/19
simply go away. To limit an insurer's liability to its indemnity limits
would only reward the insurer for failing to act in good faith toward
its insured. We therefore hold that when an insurer wrongfully
refuses to defend, it has voluntarily forfeited its ability to protect
itself against an unfavorable settlement, unless the settlement is
the product of fraud or collusion.
Truck Ins. Exch. v. VanPort Homes, Inc., 147 Wash. 2d 751, 765-66, 58 P.3d 276
(2002).
Reasonableness determinations are equitable proceedings to which a jury
trial right does not attach. Bird, 175 Wash. 2d at 768 (citing ROW 4.22.060(1)).
Indeed, ROW 4.22.060(1) unequivocally removes from the province of the jury a
factual determination of whether the amount of a covenant judgment is
reasonable. As our Supreme Court stated, "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 Wash. 2d at 772. Rather, the role of the jury is to
"make a factual determination of an insured's bad faith damages other than and
in addition to the covenant judgment." Miller, 180 Wash. App. at 801.
"An action for bad faith handling of an insurance claim sounds in tort."
Safeco Ins. Co. of Am. v. Butler, 118 Wash. 2d 383, 389, 823 P.2d 499(1992).
Harm is an essential element of any tort claim, including the bad faith handling of
an insurance claim. Butler, 118 Wash. 2d at 389 (citing Burnham v. Commercial
Cas. Ins. Co., 10 Wash. 2d 624, 627, 117 P.2d 644 (1941)). In cases in which an
insurer acts in bad faith regarding its duty to defend or settle, a rebuttable
presumption of harm arises. Butler, 118 Wash. 2d at 390-91.
The nature of a bad faith claim against an insurer requires that an
'almost impossible burden' of proof be placed on either the insured or the
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No. 74717-7-1/20
insurer. Mut. of Enumclaw Ins. Co. v. Dan Paulson Constr., Inc., 161 Wash. 2d 903,
921, 169 P.3d 1 2007 (quoting Butler, 118 Wash. 2d at 390 (quoting ALLAN D.
WINDT, INSURANCE CLAIMS AND DISPUTES: REPRESENTATION OF INSURANCE
COMPANIES AND INSUREDS § 2.09, at 40-41 (2d ed. 1988))). "Either the insured
will face the almost impossible burden of proving that "he or she is demonstrably
worse off because of" the insurer's bad faith or the insurer will face the almost
impossible burden of proving the reverse." Dan Paulson, 161 Wash. 2d at 921
(quoting Butler, 188 Wn.2d at 930(quoting WINDT,supra,§ 2.09, at 40-41)). "As
between the insured and the insurer, it is the insurer that controls whether it acts
in good faith or bad. Therefore, it is the insurer that appropriately bears the
burden of proof with respect to the consequences of that conduct." Dan Paulson,
161 Wash. 2d at 921.
III
The primary question before us is whether the trial court erred by entering
judgment in favor of Gosney in an amount that included the amount of the
underlying judgment. Resolution of this complex matter requires a close
inspection of the jury instructions and the answers on the special verdict form in
light of the applicable law and the trial record.
We review de novo the legal effect of a verdict. Estate of Dormaier v.
Columbia Basin Anesthesia, PLLC, 177 Wash. App. 828, 866, 313 P.3d 431
(2013). A special verdict asks the jury to return written findings on each issue of
fact. CR 49(a). "Once a jury renders a verdict, the trial court must declare its
legal effect." Dormaier, 177 Wash. App. at 866 (citing Dep't of Highways v. Evans
- 20 -
No. 74717-7-1/21
Engine & Equip. Co., 22 Wash. App. 202, 205-06, 589 P.2d 290(1978)). The trial
court should view the verdict in light of the jury instructions and trial evidence,
construing the verdict to implement the jury's intent if consistent with the law.
Dormaier, 177 Wash. App. at 866. If the special verdict answers conflict with one
another, the trial court must attempt to harmonize them. If the special verdict
answers are irreconcilable, the trial court must order further deliberations or a
new trial. Dormaier, 177 Wash. App. at 866 (citing Tincani v. Inland Empire
Zoological Soc'y, 124 Wash. 2d 121, 136, 875 P.2d 621 (1994)).
A
Our first inquiry is whether the special verdict form provided the jury with
an opportunity to award damages to Gosney. We conclude that, by its plain
terms, it did not.
We begin our analysis with Question 4 of the special verdict form—
damages. Question 4a asked the jury, "Based on the jury instructions, what
amount of damages, if any, do you find were incurred by Plaintiffs John Vose and
Pizza Time?" The jury was further instructed not to duplicate damages across
multiple claims and not to reduce the damages for contributory negligence. The
jury awarded Vose and PT $100,000 for negligence, $20,000 for breach of
contract, $300,000 for breach of the duty of good faith, $20,000 for breach of the
CPA, and $20,000 for breach of the IFCA. The jury was then asked to designate
the amount of damages incurred by Vose, as opposed to those incurred by PT.
The jury found that Vose incurred $240,000 in damages.
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No. 74717-7-1/22
Question 4 plainly does not provide the jury with an opportunity to award
damages to Gosney.13 Indeed, Question 4 is unique among the questions
presented to the jury in that it is the only question that—instead of referencing the
"Plaintiffs"—asks specifically about Vose and PT while not mentioning Gosney.
The other questions presented to the jury ask about "Plaintiffs" generally—a term
that included Vose, PT, and Gosney.
But the jury would have understood that Gosney stood to recover
damages in this suit. Beninger informed the jury on the first day of trial that
Gosney was "what's called an assignee. . . . [S]he is here standing, basically
standing in Pizza Time's shoes to pursue the claims, if any, that Pizza Time has
against Fireman's." Fireman's argued to the jury that Bundy and Beninger had
colluded to commit fraud—a claim that existed only because of the assignment.
The jury heard extensive testimony from Bundy concerning the assignment and
the preclusive effect the assignment had on Vose's ability to file a claim against
Fireman's. The jury heard testimony concerning the assignment from Vose. The
jury heard opinion testimony concerning this particular assignment, and
assignments generally, from multiple expert witnesses. The jury was reminded
of the assignment again during closing argument.
The parties' presentation of evidence and the jury instructions confirmed
that Gosney was a "Plaintiff' as contemplated by other questions on the special
verdict form. Instruction 30 identified Vose and PT as the first party claimants.
13 That Question 4a was designed for the jury to, if it chose, award damages to Vose and
PT is made clear by the language of Question 4b, which began, "If you awarded damages in
Question 4a ... ."
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No. 74717-7-1/23
Instruction 31 identified Gosney as the assignee of rights, claims, and causes of
action of Vose and PT. The jury was instructed that, as an assignee, Gosney
"steps into the shoes of assignor and has the rights of the assignor." Instruction
54 told the jury that, if it found breach of the duty of good faith to defend or settle
and did not find fraud or collusion, its award for the Plaintiffs "must include the
amount of the judgment on the arbitration award." From the testimony,
argument, and instructions of the court, the jury would have understood that it
was Gosney who would recover on the underlying judgment.
Moreover, because the underlying judgment represented only the
presumptive measure of damages—theoretically allowing Gosney to seek
damages in addition to the amount of the underlying judgment—the instructions
collectively signaled to the jury that it could be asked to determine damages due
to Vose, PT, and Gosney. Bird, 175 Wash. 2d at 765. Despite this, no question on
the special verdict form gave the jury an opportunity to award damages to
Gosney.
Notwithstanding all of this, given the manner in which the case was
argued in closing argument by Gosney's counsel, the instructions and the special
verdict form were not inconsistent. Rather, the language instructing the jury that
its verdict "must include" the underlying judgment was surplusage. This is so
because, when an assignee is seeking only an amount equal to the amount of a
covenant judgment, no factual question on the amount of damages is presented
to the jury. If the assignee establishes an entitlement to relief, the amount of the
covenant judgment is due as a matter of law. Here, because Gosney did not, in
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No. 74717-7-1/24
closing argument, seek an award greater than the amount of the underlying
judgment, there was no requirement—constitutional or otherwise—that the jury
be asked to set out the amount of damages due to Gosney. Gosney's omission
from Question 4 of the special verdict form was proper. The answers to Question
4 do not signal that the jury rejected Gosney's claim.
The trial court did not err by so ruling.
Our next inquiry is whether the jury found that Plaintiffs had established
every element of the tort of bad faith failure to defend or settle.14,15 The trial court
ruled that it had. We agree.
Question 1 a asked the jury,"Have the Plaintiffs proven all elements of any
or all of their claims as to the Defendants?" The jury answered "Yes" for breach
of the duty of good faith. Question lb asked the jury, "If you answered 'yes' to
Question la as to Breach of Duty of Good Faith, did you find a breach of the duty
to defend or settle?" The jury answered "Yes."
We begin by noting that the jury was not asked two separate and distinct
questions but, rather, two interrelated questions. This understanding is
supported by the trial court's decision to designate the questions as Question la
and Question 1 b, rather than Question 1 and Question 2. Question I a
14 "The duty to act in good faith or liability for acting in bad faith generally refers to the
same obligation." Tank v. State Farm Fire & Cas. Co., 105 Wash. 2d 381, 385, 715 P.2d 1133
(1986)(citing Tyler v. Grange Ins. Ass'n, 3 Wash. App. 167, 173, 473 P.2d 193(1970)). The source
of that obligation is the same—the fiduciary relationship between the insurer and the insured.
Tank, 105 Wash. 2d at 385.
15 Again, when a plaintiff proves all elements of the tort of bad faith failure to defend or
settle and the defendant does not prove fraud or collusion, the plaintiff has established an
entitlement to relief.
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No. 74717-7-1/25
unequivocally asked the jury to find whether Plaintiffs had proved "all elements"
of any or all of their claims. (Emphasis added.) The most natural way to
understand Question 1 b, therefore, is that it asked the jury to answer whether
Plaintiffs had proved "all elements" of the tort of bad faith failure to defend or
settle. The trial court's ruling is consistent with this understanding.
We therefore conclude that the jury's affirmative answer to Question lb
necessarily includes a finding of harm.
Fireman's argues to the contrary, asserting that Question lb was
designed to ask the jury only whether it had found a breach of the duty to defend
or settle, not whether it had found all elements of the corresponding tort proved.16
But Fireman's offers no explanation as to why the trial court would so inquire.
Determining that the jury found breach alone proved would not have assisted the
court. Such a finding would serve no purpose. On the other hand, a purpose
was served by asking, in Question 1 b, specifically about the tort of breach of duty
to defend or settle, as opposed to the breach of the duty of good faith generally.
As Instructions 53 and 54 make clear, different evidence was required to prove
these different versions of the tort of breach of the duty of good faith.
Indeed, for the trial judge to have accepted Fireman's interpretation of
Question 1 b, the judge would have had to believe that, after a five-week trial
during which the primary cause of action at issue was the claim that Fireman's
committed the tort of bad faith breach of its duty to defend or settle, he nowhere
16 Fireman's contends that it proved to the jury that no harm arose from its breach of the
duty to defend or settle and that this explains the jury's decision to not include the amount of the
underlying judgment in its award of damages.
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No. 74717-7-1/26
asked the jury to declare whether it found that cause of action to have been
proved. That is not a reasonable reading of the court's instructions and verdict
form and it is unsurprising that the judge refused to adopt it.
Our understanding of Question la and lb is further supported by other
instructions to the jury. As discussed herein, harm is an essential element of the
tort of bad faith. Butler, 118 Wash. 2d at 389. Although the jury was not provided
with an elements instruction pertaining to the tort of breach of the duty to defend
or settle, the jury was appraised of the role that harm plays in proving the tort.
Instruction 53 identified the element of harm as it pertains to both bad faith
generally and bad faith failure to defend or settle. Harm was also identified as an
essential element in the instructions pertaining to Plaintiffs' CPA and IFCA
claims.
The jury found that Plaintiffs had proved all elements of the tort. This
finding necessarily included a finding of harm.
Our next inquiry is whether the decision to award the underlying judgment
amount was within the province of the jury. We answer in the negative.
The jury was properly instructed that Fireman's was liable for the entire
amount of the underlying judgment if it breached its duty of good faith to defend
or settle and failed to prove fraud or collusion in the settlement. As discussed
herein, the jury found that Plaintiffs had proved all elements of the tort of bad
faith failure to defend or settle—a finding that necessarily includes the element of
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No. 74717-7-1/27
harm. The jury further found that Fireman's had failed to prove its affirmative
defenses of fraud and collusion.
These factual findings are the necessary predicates to holding Fireman's
liable for the underlying judgment. Whether the covenant judgment itself was
reasonable was not a decision within the province of the jury. Bird 175 Wash. 2d at
768 (citing RCW 4.22.060(1)). Because Gosney did not request the jury to
award damages in addition to the underlying judgment, the total amount of
damages incurred by Gosney was likewise not a decision within the province of
the jury. There were no other factual questions put to the jury pertaining to the
underlying judgment.17
Accordingly, the decision to award the amount of the underlying judgment
was not within the province of the jury.
The jury here was tasked with finding whether Plaintiffs had proved that
Fireman's breached its duty of good faith to defend or settle and whether
Fireman's had proved its affirmative defenses of fraud or collusion. After the jury
made its findings, the trial court gave legal effect to the verdict.18 There was no
error.
17 We therefore reject Fireman's contention that it cannot be held liable for the underlying
judgment because it did not receive adequate notice of the arbitration.
The special verdict form used in this matter was substantially similar to the verdict form
proposed by Fireman's. Fireman's chose not to ask the jury to make a finding concerning notice,
thus forfeiting an opportunity to receive an explicit finding on the question. All factual questions
put before the jury inhere in the verdict. CR 49(a); Sintra, Inc. v. City of Seattle, 131 Wash. 2d 640,
659, 935 P.2d 555(1997). It was Fireman's obligation to seek the jury's answer to any particular
question properly before it. We must assume that all such questions were subsumed within the
various questions set forth in the special verdict form.
18 The trial court's ruling was not an additur. An award of additur is made pursuant to
RCW 4.76.030. That statute provides:
If the trial court shall, upon a motion for new trial, find the damages awarded by a
jury to be so excessive or inadequate as unmistakably to indicate that the
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No. 74717-7-1/28
IV
Having concluded that the trial court did not err by entering judgment in
favor of Gosney in the principal amount of the underlying judgment, we turn to
Fireman's remaining contentions. Fireman's assigns error to two of the jury
instructions. Fireman's also contends that the trial court erred by restricting its
presentation of evidence and by refusing to excuse a juror. Finally, Fireman's
contends that the trial court erred by ruling that it was collaterally estopped from
contesting the underlying judgment. Each contention is addressed in turn.
A
Fireman's contends that two of the court's jury instructions did not
correctly state the law.
We review the adequacy of jury instructions de novo. Hall v. Sacred Heart
Med. Ctr., 100 Wash. App. 53, 61, 995 P.2d 621 (2000). "Jury instructions are
sufficient if they (1) allow each party to argue its theory of the case,(2) are not
misleading, and (3) when read as a whole, properly inform the trier of fact of the
applicable law." City of Bellevue v. Raum, 171 Wash. App. 124, 142, 286 P.3d 695
(2012)(citing Caruso v. Local Union No. 690 of Intl Bhd. of Teamsters, 107
Wash. 2d 524, 529, 730 P.2d 1299 (1987)). "[A]n instruction that contains an
erroneous statement of the applicable law is reversible error where it prejudices a
amount thereof must have been the result of passion or prejudice, the trial court
may order a new trial or may enter an order providing for a new trial unless the
party adversely affected shall consent to a reduction or increase of such verdict.
When a trial court employs an additur, the court alters the jury's verdict by increasing the
amount awarded. Herriman v. May, 142 Wash. App. 226, 234, 174 P.3d 156(2007). In so doing,
the trial court does not give effect to the verdict. Rather, it corrects the verdict (pursuant to
statutory procedure and limitation).
Here, the trial judge'gave effect to the jury's verdicts. The judge did not correct or alter
the verdicts. In so doing, the judge did not employ an additur.
- 28 -
No. 74717-7-1/29
party." Cox v. Spangler, 141 Wn.2d 431,442, 5 P.3d 1265, 22 P.3d 791 (2000).
Error is not prejudicial "unless it affects, or presumptively affects, the outcome of
the trial." Brown v. Spokane County Fire Prot. Dist. No. 1, 100 Wash. 2d 188, 196,
668 P.2d 571 (1983).
1
Fireman's first contends that the trial court erred by rejecting its proposed
instructions defining "collusion" and instead providing an instruction that did not, it
asserts, adequately define the term.
Fireman's submitted two proposed jury instructions regarding collusion.
The first proposed instruction defined collusion as "undisclosed cooperation or
agreement among two or more people for an improper purpose," and further
provided that collusion "may be inferred through the conduct of those involved."
The second proposed instruction was lengthy and stated:
What constitutes collusion will differ with each situation.
Collusion may be inferred from the circumstances. Factors that
could demonstrate collusion include but are not limited to: whether
there was concealment; whether the settlement was fairly and
honestly negotiated; failure of the settling insured to consider viable
available defenses; the length or duration of the arbitration; parallel
conduct of the parties at the arbitration; whether a party's
investigation and discovery were sufficient for that party and the
court to act intelligently at the arbitration; and whether witnesses
were subjected to vigorous cross-examination calculated to
undermine the testimony.
The trial court rejected Fireman's proposed instructions and instead gave
an instruction that defined collusion as "secret cooperation for an illegal or
- 29 -
No. 74717-7-1/30
dishonest purpose."19 The trial court provided the jury with a separate instruction
regarding fraud.
On appeal, Fireman's contends that the trial court's instruction artificially
constrains the definition of collusion and invites confusion about what types of
agreements are "illegal." Fireman's also contends that, because the trial court
did not instruct the jury that collusion could be inferred from attendant
circumstances, the jury could have reasonably concluded that a finding of
collusion required direct evidence.
Collusion is commonly defined as "[a]n agreement to defraud another or to
do or obtain something forbidden by law," BLACK'S Law DICTIONARY 321 (10th ed.
2014); and as a "secret agreement: secret cooperation for a fraudulent or
deceitful purpose. ..: a secret agreement between two or more persons to
defraud a person of his rights often by the forms of law." WEBSTER'S THIRD NEW
INTERNATIONAL DICTIONARY 446(2002).
Contrary to Fireman's assertions, nothing in the instruction given serves to
constrain the definition of collusion or invite confusion about what constitutes an
"illegal. .. purpose." The instruction is clear that collusion can be evidenced by
secret cooperation for an "illegal or dishonest purpose," allowing Fireman's to
argue to the jury that it could find collusion even sans illegal activity. (Emphasis
added.) Neither do the instructions indicate that direct evidence of collusion is
required. Instruction 9 properly instructs the jury that it must find collusion by
19 The trial court also rejected Plaintiffs' proposed instruction defining collusion as "an
agreement to defraud another or to do or obtain something forbidden by law."
- 30 -
No. 74717-7-1/31
clear, cogent, and convincing evidence. Instruction 2 properly instructs the jury
that "[t]he law does not distinguish between direct and circumstantial evidence in
terms of their weight or value in finding the facts in this case."
"The precise wording of the instructions is within the broad discretion of
the court." Housel v. James, 141 Wash. App. 748, 758, 172 P.3d 712(2007). The
trial court did not abuse that discretion by offering a clear instruction that allowed
each party to argue its theory of the case.
2
Fireman's also contends that the trial court erred by instructing the jury
that a single violation of the Washington Administrative Code(WAC)constitutes
bad faith.
Instruction 12 provides: "A violation, if any, of one or more of the following
statutory or regulatory requirements is a breach of the duty of good faith, an
unfair method of competition, an unfair or deceptive act or practice in the
business of insurance, and a breach of the insurance contract." That instruction
lists six unfair methods of competition and unfair or deceptive acts or practices
found in WAC 284-30-330.
Instruction 24 provides: "For purposes of the [CPA], a breach of the duty
of good faith or a single violation of a statute or regulation relating to the business
of insurance is an unfair or deceptive act or practice. A single violation also
affects the public interest." That instruction further provides: "If you find that a
breach of the duty of good faith or a single violation of a statute or regulation
- 31 -
No. 74717-7-1/32
relating to the business of insurance has occurred, then you must find that the
first three elements of a[CPA]violation have been proved."
Fireman's contends that a single violation of the WAC is insufficient to
support a finding of bad faith. Fireman's relies on WAC 284-30-300 to support its
contention. Pursuant to that regulation:
The purpose of this regulation, WAC 284-30-300 through 284-30-
400, is to define certain minimum standards which, if violated with
such frequency as to indicate a general business practice, will be
deemed to constitute unfair claims settlement practices.
WAC 284-30-300(emphasis added).
Our Supreme Court previously rejected an argument similar to the one
now pressed by Fireman's. See Indus. Indem. Co. of the Nw., Inc. v. Kalleviq,
114 Wash. 2d 907, 923-24, 792 P.2d 520(1990). In that case, Industrial Indemnity
argued that the trial court erred by instructing the jury that a single violation of
WAC 284-30-330 constitutes an unfair trade practice. Kalleviq, 114 Wash. 2d at
921. Our Supreme Court disagreed.
A violation of WAC 284-30-330 constitutes a violation of
RCW 48.30.010(1),(20] which in turn constitutes a per se unfair trade
practice .. . . This per se unfair trade practice may result in CPA
liability if the remaining elements of the 5-part test for a CPA action
under RCW 19.86.090 are established.
The language of RCW 48.30.010 is plain and unambiguous.
RCW 48.30.010 does not contain the frequency requirement set
forth in WAC 284-30-300. RCW 48.30.010 prohibits insurers from
engaging in any unfair trade practice. In other words, under RCW
48.30.010, a single violation of WAC 284-30-330 constitutes a
statutorily proscribed unfair trade practice. Accordingly, an insured
may establish a per se unfair trade practice under the CPA by
20 RCW 48.30.010 prohibits insurers from engaging in unfair trade practices and permits
the commissioner to promulgate regulations and define other acts and practices as unfair or
deceptive.
- 32 -
No. 74717-7-1/33
demonstrating a violation of RCW 48.30.010 based upon a single
violation of WAC 284-30-330.
Kallevig, 114 Wash. 2d at 923-24.
The jury instructions correctly stated the law.
Fireman's next contends that it was prevented from presenting its case
because it was not permitted to "call Beninger."
At trial, Vose testified that Bundy and Beninger drove the
settlement and arbitration. .. . If judgment is not entered for
[Fireman's], at a minimum,[Fireman's] is entitled to a new trial
because denying it the right to cross-examine Beninger—given his
pivotal role in the fraud and collusion and given that key trial
exhibits were his own statements—impeded [Fireman's] ability to
present key defenses. This prejudice was exacerbated by the fact
that both fraud and collusion under the jury instructions, required
[Fireman's] to establish the speaker's intent. . . . [Fireman's] was
thus given an improperly burdensome task—to prove fraud or
collusion by clear and convincing evidence without cross-examining
the person who orchestrated the false statements. This prejudice
was magnified by Beninger's appearance as the lead trial attorney
for Plaintiffs during the five week trial.
Br. of Appellant at 58-59 (footnote omitted).
Fireman's complains that it was "not permitted to call Beninger" but does
not identify or assign error to any court order prohibiting it from calling Beninger
as a witness. Rather, the record reveals that Fireman's itself moved in limine to
bar Plaintiffs from offering as evidence Beninger's knowledge and testimony
concerning the facts at issue in this litigation: "In particular, the Court should
direct Mr. Beninger to refrain from testifying as a fact witness at trial or offering
verbal commentary that takes the form of testimony during voir dire, witness
questioning, opening statements, and closing argument." Defendants' Omnibus
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No. 74717-7-1/34
Motions in Limine at 5. The trial court granted Fireman's motion and Beninger
did not testify at trial.
The trial court granted Fireman's the relief that it sought. Fireman's
attempt to appeal from that relief is unavailing.
Fireman's next asserts that the trial court improperly restricted its
presentation of evidence by limiting the scope of an expert witness's testimony.
We review a trial court's admission or rejection of expert testimony for an
abuse of discretion. State v. Weaville, 162 Wash. App. 801, 824, 256 P.3d 426
(2011). Expert witness testimony is admissible to assist the trier of fact in
understanding the evidence or in determining a fact in issue. ER 702. Generally,
"[t]he facts or data in the particular case upon which an expert bases an opinion
or inference may be those perceived by or made known to the expert at or before
the hearing." ER 703.
Fireman's retained an expert witness, attorney Jeff Tilden, to offer opinion
testimony regarding the settlement and arbitration processes. Tilden was
deposed on November 26, 2014. During his deposition, Tilden testified that he
was concerned about the settlement and arbitration processes. However, Tilden
opined that there was nothing wrong with the settlement agreement itself and
that it was not the product of fraud or collusion.
Prior to trial, both Plaintiffs and Fireman's moved in limine for an order
prohibiting the presentation of undisclosed expert opinions. The trial court
granted the requests.
- 34 -
No. 74717-7-1/35
During trial, Tilden offered expert testimony that varied from his deposition
testimony. Tilden testified:
By agreement, Mr. Bundy rolled over in the arbitration proceeding
and put up no testimony at all to speak of. By agreement it appears
that Mr. Bundy and the plaintiff's lawyers manufactured the
argument that Ms. Heller was an employee of Mr. Vose's
corporation. By agreement, the parties volunteered Mr. Vose's as
... a liable defendant, despite the fact he had one spectacular
argument for defeating liability, and a second one I believe is very
good. By agreement, they defrauded the bankruptcy court or stood
by while it happened.
Plaintiffs interposed an objection, asserting that Tilden's testimony
constituted an undisclosed expert opinion in violation of the court's order.
Plaintiffs argued that Tilden's testimony as to the manufacturing of Vose's liability
contradicted his deposition testimony that the settlement agreement was not the
product of fraud.21 Fireman's responded by arguing that Tilden's testimony was
based on new information gleaned from Vose's trial testimony.
The trial court reviewed Vose's trial testimony and determined that it did
not vary from his deposition testimony.22 The trial court ruled that there was no
substantial change in circumstances and, accordingly, Tilden could testify as to
his concerns regarding the settlement process but could not opine that the
settlement agreement itself was the product of fraud or collusion, as such
testimony would constitute a previously undisclosed expert opinion and thus be a
21 Plaintiffs also objected to Tilden opining that Heller was not a PT employee and opining
that Plaintiffs agreed to defraud the bankruptcy court. The trial court ultimately allowed Tilden to
testify as to the Heller employment issue but prohibited Tilden from testifying as to the claim of
bankruptcy fraud. On appeal, Fireman's has assigned error to only the trial court's ruling
prohibiting Tilden from opining on fraud or collusion in the settlement agreement.
22 Fireman's asserted to the trial judge that Vose testified at trial that"my lawyers told me
I should commit fraud." The judge's review of the trial transcript revealed no such testimony.
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No. 74717-7-1/36
violation of the order in limine. The trial court instructed the jury to ignore those
parts of Tilden's testimony addressing the manufacturing of Vose's personal
liability. Tilden then provided extensive testimony as to his qualms about the
settlement and arbitration processes. Tilden testified that the settlement process
"was a joint attempt to manufacture [a] bad faith claim down the road."
The trial court's ruling was not an abuse of discretion. Fireman's retained
Tilden to opine on the settlement and arbitration processes. During his
deposition testimony, Tilden opined that the settlement agreement was not the
product of fraud. Tilden's trial testimony to the contrary constituted a previously
undisclosed expert opinion. It was not based on information that was unknown at
the time of the motion in limine. Accordingly, it constituted a violation of the trial
court's previous order.
The trial court did not err by so ruling.
Fireman's next contends that the trial court erred by refusing to excuse a
juror who worked with Vose's wife and was exposed to her out-of-court reactions
to the case.
"Deciding whether juror misconduct occurred and whether it affected the
verdict are matters for the discretion of the trial court, and will not be reversed on
appeal unless the court abused its discretion." Breckenridge v. Valley Gen.
Hosp., 150 Wash. 2d 197, 203, 75 P.3d 944(2003). The burden is on the party
alleging juror misconduct to show that the misconduct occurred. State v.
Hawkins, 72 Wash. 2d 565, 566, 434 P.2d 584(1967).
- 36 -
No. 74717-7-1/37
Following the submission of the case to the jury, one juror sent an e-mail
to the bailiff:
I wanted to let the judge know that a co-worker of mine mentioned
in a group setting a few weeks ago that she was in a meeting with
Kimberly Hill (Kim Vose) and she stated that Kimberly seemed
distracted, out of it, and not productive. Due to the requirements to
maintain confidentiality, I didn't respond and extricated myself from
the conversation.. ..
Because I do not work directly (nor does my colleague who made
these comments) with Kimberly Hill, I do not have any idea how she
normally presents herself in the work environment. . . . In fact, I
have never worked directly with Kimberly or any of her colleagues
on any official county matters. ... I do not and have not socialized
with Kimberly or any of her colleagues, or her direct manager.
Fireman's asked the trial court to excuse the juror. Fireman's was
concerned that the juror had received information about Hill's emotional state that
was not presented at trial and that Fireman's had no opportunity to cross-
examine the individual who made the statements.23
The trial court determined that Hill heard the information third hand, did
not respond, and terminated the conversation immediately. The trial court noted
that the juror did not know the context of the information. The trial court
determined that there were no grounds to disqualify the juror and, accordingly,
denied Fireman's request.
The trial court's ruling was not an abuse of discretion. That the juror heard
third hand information that Hill was "distracted, out of it, and not productive" was
of no consequence. Such a disclosure establishes neither misconduct nor
prejudice.
23 The juror had previously disclosed her association with Hill during voir dire.
- 37 -
No. 74717-7-1/38
Fireman's next contends that the trial court erred by ruling that it was
bound by the underlying judgment. Fireman's asserts that the "judgment rule"
does not apply because a reasonableness determination cannot be the product
of an arbitration. Fireman's also asserts that it cannot be held liable for the
underlying judgment pursuant to a theory of collateral estoppel. Each contention
is addressed in turn.
1
As discussed herein, once the amount of a covenant judgment is deemed
reasonable, it becomes the presumptive measure of damages in a later bad faith
action against the insurer. Bird, 175 Wash. 2d at 765 (citing Besel, 146 Wash. 2d at
738). The "judgment rule" binds an insurer acting in bad faith to the judgment
rendered against its insured, even if the judgment exceeds contractual policy
limits. Miller, 180 Wash. App. at 799.
Fireman's contends that it cannot be held liable for the underlying
judgment pursuant to the judgment rule. This is so, it asserts, because a
reasonableness determination cannot be the product of an arbitration.
As a preliminary matter, we note that, despite its numerous blanket
assertions that a reasonableness determination cannot be the product of an
arbitration, Fireman's has devoted only four sentences and a single footnote of
its 190 pages of appellate briefing to a discussion of the merits of its contention.
Fireman's cites to no authority, save an e.g. citation to the Uniform Arbitration
Act, in support of its averment.
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No. 74717-7-1/39
Parties are required to provide "argument in support of the issues
presented for review, together with citations to legal authority and references to
relevant parts of the record." RAP 10.3(a)(6). "Passing treatment of an issue or
lack of reasoned argument is insufficient to merit judicial consideration." Palmer
v. Jensen, 81 Wash. App. 148, 153, 913 P.2d 413(1996), remanded on other
grounds, 132 Wash. 2d 193, 937 P.2d 597(1997). In addition, "[w]here no
authorities are cited in support of a proposition, the court is not required to search
out authorities, but may assume that counsel, after diligent search, has found
none." State v. Logan, 102 Wash. App. 907, 911 n.1, 10 P.3d 504(2000)(quoting
DeNeer v. Seattle Post-Intelligencer, 60 Wash. 2d 122, 126, 372 P.2d 193(1962)).
Fireman's briefing on its assertion does not meet these expectations.24
Reasonableness determinations are a product of RCW 4.22.060. The
legislature's purpose in enacting the statute was to facilitate contribution actions
between (and allocate financial responsibility among)tortfeasors. "That statute
24 We also note that Fireman's theory on appeal is different from the one it advanced in
its motion for partial summary judgment. Fireman's argued therein that the judgment rule did not
apply because Plaintiffs were not permitted to arbitrate the amount of a covenant judgment.
According to Fireman's, the amount of the covenant judgment could only be determined through
negotiation and settlement.
Here, the settlement agreement provided that Plaintiffs.. . would
attempt, within 30 days, to settle for a specific amount; but they never did. . ..
There is therefore no settlement amount reached by negotiation and
compromise. There is no settlement amount that could be evaluated under the
[reasonableness]factors, and no negotiated amount as to which the test of
collusion or fraud could be applied.
Instead of a negotiated settlement amount, there is in this case an
arbitration award determined in putative litigation. An arbitration award,
determined on the merits, is not evaluated for reasonableness.
Fireman's Fund's Mot. for Partial Summ. J. at 12(footnote omitted).
Contrary to Fireman's argument below, the settlement agreement explicitly
provided for arbitration as a means of determining the final settlement amount. That fact,
and the fact that Fireman's itself moved to stay the litigation until Plaintiffs could "conduct
and conclude their arbitration to determine the final value of the settlement in their
underlying litigation," may account for Fireman's assertion of a different argument on
appeal.
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No. 74717-7-1/40
was enacted as part of the tort reform act in 1981 to provide a means to allocate
liability among joint tortfeasors. Originally under the statute, a trial court would
determine whether a settlement amount between a tort victim and fewer than all
tortfeasors was reasonable." Bird, 175 Wash. 2d at 766 (citing Glover v. Tacoma
Gen. Hosp., 98 Wash. 2d 708, 716,658 P.2d 1230 (1983), abrogated by Crown
Controls, Inc. v. Smiley, 110 Wash. 2d 695, 756 P.2d 717 (1988)). "If so, a
nonsettling tortfeasor could offset that exact amount from a damages award at
trial." Bird, 175 Wash. 2d at 766. The Supreme Court adopted nine factors for trial
courts to consider when making a reasonableness determination pursuant to
RCW 4.22.060:
"[T]he releasing person's damages; the merits of the releasing
person's liability theory; the merits of the released person's defense
theory; the released person's relative faults; the risks and expenses
of continued litigation; the released person's ability to pay; any
evidence of bad faith, collusion, or fraud; the extent of the releasing
person's investigation and preparation of the case; and the
interests of the parties not being released."
Glover, 98 Wash. 2d at 717 (alteration in original).
The legislature's purpose in enacting the reasonableness statute had
nothing to do with covenant judgments. Indeed, when lawyers first invoked
reasonableness hearings as a means of facilitating covenant judgments, there
existed neither a legislative nor a Supreme Court pronouncement that such
actions were authorized. Nevertheless, eventually, the application of RCW
4.22.060 reasonableness hearings to the approval of covenant judgments was
explicitly endorsed by our Supreme Court. See Bird, 175 Wash. 2d at 767. The
purpose of a reasonableness hearing in this setting is to present a negotiated
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No. 74717-7-1/41
settlement to a neutral party—typically a judge—to protect the insurer from
excess judgments and fraud or collusion between the settling parties. Bird, 175
Wash. 2d at 765-66. These are similar to the concerns arising in contribution
actions that necessitated the statute's adoption.
Arbitrators are a neutral party absent a material interest in the outcome of
arbitration or a substantial relationship with a party. RCW 7.04A.110(2). Herein,
Judge Burdell was a neutral party who determined an appropriate settlement
amount. Judge Burdell also considered the nine reasonableness factors and
determined that the settlement amount was reasonable.25 Judge McPhee
explicitly confirmed both the amount awarded and the reasonableness finding.26
That, by agreement, Judge Burdell imposed the damages amount on the
parties (as opposed to the parties agreeing on the amount) is a more arms-length
proceeding than that involved in the typical covenant judgment scenario.
Additionally, Judge O'Donnell allowed Fireman's to present evidence to the jury
i
on its assertions as to lack of notice, lack of an opportunity to participate in the
underlying litigation, and other matters that Fireman's believed pointed to fraud or
collusion.
Fireman's does not attempt to evaluate the proceeding here employed.
That this exact approach has never been explicitly sanctioned by the Supreme
Court does not necessarily mean that the procedure discussed in Bird is the
25 Fireman's did not resist the entry of Judge McPhee's confirmation order nor did it
appeal therefrom. The only relief it requested was the deletion of its name from the caption.
26 The face of the arbitration award recites both "Plaintiffs' damages total:
$10,800,289.00," and "A reasonable covenantjudgment, considering all Bird/Besel factors, is
$10,800,289.00."
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No. 74717-7-1/42
exclusive appropriate procedure. On this briefing, we cannot make a reasoned
decision on the question.
Neither does Fireman's address related questions. For instance,
assuming that Fireman's argument has merit, was Fireman's required to raise the
issue to the arbitrator? To the Thurston County superior court when it confirmed
the arbitration award and reasonableness finding? To the King County superior
court when Fireman's moved to compel the arbitration? Fireman's briefing does
not acknowledge these questions, let alone analyze them. In addition, the law
being as it is, we assume that other murky issues lie in wait, to be raised in a
helpfully-briefed future case.
On this record, and on this briefing, Fireman's does not present a suitable
opportunity for reasoned decision-making. Accordingly, its claim does not
warrant appellate resolution. Palmer, 81 Wash. App. at 153.
Fireman's fails to establish that the judgment rule does not apply under
these circumstances. It does not establish an entitlement to appellate relief.
2
As a corollary to its claim that the judgment rule was inapplicable,
Fireman's asked the trial court to rule that it was also not bound to the underlying
judgment by collateral estoppel. Fireman's contends that the trial court erred by
ruling to the contrary.27
27 Fireman's characterized the issue of collateral estoppel as its "defense." See Br. of
Appellant at 21, 54-57. In its reply brief, Fireman's characterizes collateral estoppel as its
"affirmative defense" and asserts that an order denying an affirmative defense cannot serve as a
basis to award damages. Reply Br. of Appellant at 96-98.
Collateral estoppel is not an affirmative defense. Fireman's argued to the trial court that
the judgment rule did not apply to bind it to the underlying judgment and, as a result, the only way
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No. 74717-7-1/43
"The purpose of the doctrine of collateral estoppel is to promote judicial
economy by avoiding relitigation of the same issue, to afford the parties the
assurance of finality of judicial determinations, and to prevent harassment of and
inconvenience to litigants." Lemond v. Dep't of Licensing, 143 Wash. App. 797,
804, 180 P.3d 829(2008)(citing Hanson v. City of Snohomish, 121 Wash. 2d 552,
561, 852 P.2d 295 (1993)). The proponent of the application of the doctrine has
the burden of proving four elements:
"(1)[T]he issue decided in the prior adjudication is identical with the
one presented in the second action;(2) the prior adjudication must
have ended in a final judgment on the merits;(3) the party against
whom the plea is asserted was a party or in privity with the party to
the prior adjudication; and (4) application of the doctrine does not
work an injustice."
Thompson v. Dep't of Licensing, 138 Wash. 2d 783, 790, 982 P.2d 601 (1999)
(quoting Nielson v. Spanaway Gen. Med. Clinic, Inc., 135 Wash. 2d 255, 262-63,
956 P.2d 312(1998)).
Here, the trial court considered the four elements of collateral estoppel
and found each element established. The trial court found that Fireman's had
notice of the arbitration and an opportunity to intervene. The trial court found that
the arbitration was "actually litigated." The trial court found that, at the arbitration,
Vose's and PT's interests were in privity with Fireman's interests. Finally, in its
order denying reconsideration, the trial court found that application of the doctrine
would not work an injustice. Accordingly, the trial court ruled that Fireman's was
collaterally estopped from contesting the underlying judgment.
it could be held liable for the underlying judgment was pursuant to a theory of collateral estoppel.
Fireman's asked the trial court to rule on the issue of collateral estoppel and the trial court did so.
This was not error.
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No. 74717-7-1/44
An appellate court can affirm a trial court judgment on any basis within the
pleadings and proof. Wendle v. Farrow, 102 Wash. 2d 380, 382, 686 P.2d 480
(1984). The trial court's ruling on collateral estoppel provides such an alternative
basis for affirmance. Fireman's had notice of the arbitration and an opportunity
to intervene, as determined first by Judge Burdell, then by Judge McPhee, and
finally by Judge O'Donnell in his ruling on collateral estoppel. As Judge
O'Donnell ruled,(1) Judge McPhee's order entering judgment against Vose and
PT and in favor of Gosney constituted a final judgment on the merits,(2)the
arbitration hearing was "actually litigated"—a determination supported by the
jury's finding that no fraud or collusion occurred, and (3) Fireman's was in privity
with Vose and PT because it owed both contractual and statutory duties to its
insured.
Finally, application of the doctrine did not work an injustice on Fireman's.
As the trial court ruled,
Fireman's Fund—a sophisticated, national insurance company with
highly competent in-house and outside counsel—evaluated
whether it should attend the arbitration hearing after receiving
notice that it would occur. Fireman's Fund had options available to
it when presented with that information. It made a decision to avoid
the hearing altogether.
An insurer places itself in a most difficult posture when it has
notice of settlement but then fails to take steps to sufficiently protect
its interests.
Given that backdrop, the Court cannot find that the
procedural irregularities that occurred during the arbitration
amounted to an injustice. Nor can this Court find that binding
Fireman's Fund to the arbitration award would work an injustice.
This is particularly true in the posture of an insurance case, when
"so long as the carrier 'has notice and an opportunity to intervene in
the underlying action against the tortfeasor,' it will be bound by the
findings, conclusions, and judgment of the arbitral proceeding."
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No. 74717-7-1/45
Lenzi v. Redland Ins. Co., 140 Wash. 2d 267, 274, 996 P.2d 603,606
(2000).
Fireman's fails to establish an entitlement to appellate relief.28
V
We next address Gosney's cross-appeal. Gosney contends that the trial
court erred by declining to award interest on the underlying judgment
commencing on the date on which the settlement agreement was signed. We
disagree.
Prejudgment interest is allowable "(1) when an amount claimed is
'liquidated' or (2) when the amount of an 'unliquidated' claim is for an amount due
upon a specific contract for the payment of money and the amount due is
determinable by computation with reference to a fixed standard contained in the
contract." Prier v. Refrigeration Eng'g Co., 74 Wash. 2d 25, 32, 442 P.2d 621
(1968). A claim is liquidated where "the evidence furnishes data which, if
believed, makes it possible to compute the amount with exactness, without
reliance on opinion or discretion." Prier, 74 Wash. 2d at 32 (citing CHARLES T.
MCCORMICK, HANDBOOK ON THE LAW OF DAMAGES § 54 (1935)).
Here, the settlement agreement provided for a 12 percent interest rate
accruing and compounding annually on the unpaid damages from the date of
signing, September 2, 2008. The settlement agreement further provided that "the
26 Fireman's also contends that the trial court erred by not granting its CR 50(a) motion
on its affirmative defenses of fraud and collusion. Although Fireman's assigns error to the trial
court's ruling, its argument on appeal consists of a single paragraph disputing factual questions
not at issue here. In any event, fraud and collusion were factual matters resolved by the jury,
which heard extensive and conflicting testimony on the matters.
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No. 74717-7-1/46
parties agree to have the full amount of the damages and/or judgments
determined by stipulation approved as reasonable by the Court, or arbitration."
By the terms of the settlement agreement, the damages were
unliquidated. See Hansen v. Rothaus, 107 Wash. 2d 468, 477, 730 P.2d 662
(1986)("Because reliance upon opinion and discretion is necessary in
determining whether the amounts expended were reasonably necessary and
reasonable in amount, medical expenses, here cure, are unliquidated."). It was
not until Judge McPhee entered an order confirming the arbitration award as
reasonable and entering judgment against Vose and PT for $10,800,289 that the
exact amount due was determinable.
Gosney also contends that the terms of the insurance policy require that
interest accrue from the date of the settlement agreement. The policy provides
payment for 101 interest on the full amount of any judgment that accrues after
entry of the judgment and before we have paid, offered to pay, or deposited in
court the part of the judgment that is within our Limit of Insurance." Because
Fireman's has never paid its policy limits, Gosney asserts that interest on the
$2.5 million partial judgment should accrue from the date of the settlement
agreement. But the "entry of the judgment" did not occur until November 16,
2012—the terms of the policy do not contemplate prejudgment interest.
The trial court entered judgment with interest on the underlying judgment
amount compounding annually as of November 16, 2012, the date of
confirmation of the arbitration award by Judge Tabor. The trial court did not err
by so doing.
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No. 74717-7-1/47
VI
In their cross-appeals, Vose and PT contend that the trial court erred by
ruling that they were judicially estopped from having judgment entered in their
favor on the jury's verdicts. We agree.
A
We review an application of the doctrine of judicial estoppel for an abuse
of discretion.29 Arkison v. Ethan Allen, Inc., 160 Wash. 2d 535, 538, 160 P.3d 13
(2007); Cunningham v. Reliable Concrete Pumping, Inc., 126 Wash. App. 222, 227,
108 P.3d 147 (2005); see Taylor v. Bell, 185 Wash. App. 270, 283 n.13, 340 P.3d
951 (2014)(reviewing a trial court's summary judgment decision based on
judicial estoppel). A decision constitutes an abuse of discretion when it is
manifestly unreasonable or based on untenable grounds or reasons. Kreidler v.
Cascade Nat'l Ins. Co., 179 Wash. App. 851, 861, 321 P.3d 281 (2014).
A court's decision is manifestly unreasonable if it is outside the
range of acceptable choices, given the facts and the applicable
legal standard; it is based on untenable grounds if the factual
findings are unsupported by the record; it is based on untenable
reasons if it is based on an incorrect standard-or the facts do not
meet the requirements of the correct standard.
In re Marriage of Fiorito, 112 Wash. App. 657, 664, 50 P.3d 298 (2002).
"Judicial estoppel is an equitable doctrine that precludes a party from
asserting one position in a court proceeding and later seeking an advantage by
taking a clearly inconsistent position." Arkison, 160 Wash. 2d at 538 (quoting
Bartley-Williams v. Kendall, 134 Wash. App. 95, 98, 138 P.3d 1103(2006)). "There
29 The parties dispute the standard of review applicable to the trial court's order.
Because the trial court granted Fireman's motion after the entry of the jury's verdict—and entered
findings of fact after reviewing the entire record—we apply the abuse of discretion standard.
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No. 74717-7-1/48
are two primary purposes behind the doctrine: preservation of respect for judicial
proceedings and avoidance of inconsistency, duplicity, and waste of time."
Anfinson v. FedEx Ground Package Sys., Inc., 174 Wash. 2d 851, 861, 281 P.3d
289 (2012). Judicial estoppel is intended to protect the integrity of the courts—it
is not designed to protect litigants. Arp v. Riley, 192 Wash. App. 85, 91, 366 P.3d
946 (2015), review denied, 185 Wash. 2d 1031 (2016).
A trial court's determination of whether to apply the judicial estoppel
doctrine is guided by three core factors:
(1) whether the party's later position is clearly inconsistent with its
earlier position,(2) whether acceptance of the later inconsistent
position would create the perception that either the first or the
second court was misled, and (3) whether the assertion of the
inconsistent position would create an unfair advantage for the
asserting party or an unfair detriment to the opposing party.
Taylor, 185 Wash. App. at 282 (citing Anfinson, 174 Wash. 2d at 861).
As a general rule, if a debtor in a bankruptcy proceeding fails to
report a cause of action and obtains a discharge or confirmation, a
trial court may apply judicial estoppel to bar the action. This
prevents a debtor from protecting the asset from creditors by
representing to the bankruptcy court that no claim exists and then
asserting in another court that the claim does exist. But "[a] party's
nondisclosure of a claim in bankruptcy does not automatically lead
to estoppel in a future suit," especially where a party lacks
knowledge or has no motive to conceal the claims.
Am, 192 Wash. App. at 92-93 (footnotes omitted)(citing Ah Quin v. County of
Kauai Dep't of Transp., 733 F.3d 267, 271 (9th Cir. 2013) quoting Miller v.
Campbell, 137 Wash. App. 762, 771, 155 P.3d 154 (2007), affd on other grounds,
164 Wash. 2d 529, 192 P.3d 352(2008)).
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No. 74717-7-1/49
B
Following entry of the jury's verdict, the trial court ruled that Vose was
judicially estopped from recovering any damages in this matter:
Plaintiff's attempt to distinguish a claim vs. reservation of
damages in support of their proposition that Mr. Vose's failure to
disclose the settlement agreement in the bankruptcy proceeding is
of no moment. What is abundantly clear is that the bankruptcy
petition required Mr. Vose to disclose equitable and future interests
of all his assets and other personal property of any kind. Trial Ex.
384. His reservation of an ability to seek damages in the instant
case falls under this broad category. Despite his awareness of this
lawsuit and his reserved claim for damages, he failed to disclose
them.
All of the elements of judicial estoppel have been met here
with respect to Mr. Vose's retention of his right to pursue damages.
His position during this case is clearly inconsistent with his
declaration during this bankruptcy proceeding. His recovery here
surely creates the perception that he has misled the bankruptcy
court. His ability to collect these funds will amount to a fraud on the
bankruptcy court, as any funds he stands to collect from this award
should flow to his creditors.
The trial court also ruled that, because Vose was the sole shareholder of PT, PT -
was likewise judicially estopped from recovering damages.
As a preliminary matter, we note that the trial court made no findings to
support its conclusion that PT was judicially estopped from recovering on the
jury's verdict. Vose declared personal bankruptcy in 2010. PT has never
declared bankruptcy. The trial court made no findings of alter ego, comingling of
assets, a failure to adhere to corporate formalities, or any other finding that could
support a ruling extending judicial estoppel to PT. Rather, the trial court simply
noted that Vose is the sole shareholder of PT. In this, the court erred.
-49 -
No. 74717-7-1/50
In addition, the trial court failed to adequately consider the nature of the
interest retained by Vose and whether disclosure of that interest would have
changed the outcome of the bankruptcy.
The bankruptcy petition required Vose to list "contingent and unliquidated
claims of every nature, including tax refunds, counterclaims of the debtor, and
rights to setoff claims." "At the commencement of bankruptcy, the debtor must
disclose all of his assets to be included in the bankruptcy estate for the potential
benefit of creditors." Miller v. Campbell, 164 Wash. 2d 529, 540, 192 P.3d 352
(2008)(citing 11 U.S.C. § 521(a)(1)). "The bankruptcy estate includes all the
debtor's potential claims or causes of action that existed at the time he or she
filed for bankruptcy." Miller, 164 Wash. 2d at 540 (citing 11 U.S.C. § 541(a)(1)).
Contrary to the trial court's conclusion, it was not proved that, at the time
of the bankruptcy filing, Vose had any such asset, claim, or cause of action to
disclose.
Initially, it is apparent from the language of the settlement agreement that
Vose had no right or ability to personally institute a claim or lawsuit against
Fireman's. Vose could not initiate a lawsuit against Fireman's himself and he
could not compel Gosney to file such a suit. As a corollary, Vose could not
prevent Gosney from filing suit against Fireman's nor could he control any of the
claims that Gosney might decide to bring.
In addition, Fireman's presented no evidence whatsoever—and the trial
court made no findings—as to the precise nature and value of Vose's interest.
Pursuant to 11 U.S.C.§ 541(a)(1), the bankruptcy estate is established at the
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No. 74717-7-1/51
"commencement of a case," i.e., at the filing of the petition. A debtor's recovery
for an act that occurs after the "commencement of a case" is not at issue. As the
proponent of the judicial estoppel defense, Fireman's bore the burden of proving
, that, at the time that Vose filed for bankruptcy, he possessed some cognizable
and valuable interest. But Fireman's offered no such proof. Rather, the record
indicates that all of Vose's claimed personal damages originated postbankruptcy,
when Fireman's refused to settle and refused to engage in arbitration. Indeed,
had Fireman's agreed to the terms of the settlement agreement and paid the
policy limits, Gosney would have released all claims against Fireman's (with or
without Vose's assent), leaving Vose with no damages to recover and no claim or
cause of action to assert.
Finally, Fireman's presented no evidence that disclosure would have
changed the outcome of the bankruptcy. Fireman's offered no evidence to prove
that any creditor would have requested a plan amendment if Vose had disclosed
his potential interest in a lawsuit. Fireman's offered no evidence that the
bankruptcy court would have changed the relief that it imposed had Vose
disclosed the potential interest. Such proof is necessary. Arp, 192 Wash. App. at
99-101. Thus, even assuming that Vose had something to disclose to the
bankruptcy court, Fireman's failure to produce any evidence that disclosure
would have changed the outcome of the bankruptcy proceedings precludes
application of judicial estoppel.
- 51 -
No. 74717-7-1/52
Judicial estoppel does not exist to create a windfall for the proponent
party. Arkison, 160 Wn.2d at 540(quoting Bartley-Williams, 134 Wash. App. at
102). Rather, the doctrine is designed to protect the integrity of the judicial
process. Am, 192 Wash. App. at 100. Here, Fireman's offered insufficient
evidence—and the trial court made insufficient findings—to support applying the
doctrine of judicial estoppel to either Vose or PT. Vose's alleged failure to
disclose an amorphous and possibly valueless interest to the bankruptcy court
does not preclude him from recovering damages arising from the postbankruptcy
filing bad faith conduct of the proponent party. Similarly, given that PT is a
separate legal entity that never filed a bankruptcy petition, application of the
doctrine to it was entirely unwarranted.
We reverse the trial court's order on judicial estoppel and remand for the
entry of a judgment in favor of Vose and PT consistent with the jury's verdicts.33
VII
Finally, Fireman's contends that the trial court erred by awarding Vose and
PT attorney fees and costs, including a lodestar multiplier of 1.25.31
30 Fireman's contends that the trial court erred ,by awarding Gosney the underlying
judgment amount because, it avers, the court's ruling on judicial estoppel "must be understood to
negate the jury's finding of harm, by reducing all damages to zero." Br. of Appellant at 51.
Because harm is an essential element of the bad faith handling of an insurance claim, and
because Plaintiffs cannot establish harm as a result of the court's judicial estoppel ruling,
Fireman's reasons, it was error to award Gosney the underlying judgment amount
Fireman's cites to no authority to support its assertion that the application of judicial
estoppel against Vose or PT should somehow preclude Gosney, who bargained for and obtained
an assignment of Vose's prebankrupcy claims and causes of action prior to Vose filing for
bankruptcy, from recovering against Fireman's. In any, event, because we reverse the trial court's
order on judicial estoppel, we need not further address'this contention.
31 Fireman's has not assigned error to the trial court's award of attorney fees and costs to
Gosney.
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No. 74717-7-1/53
A
We review a trial court's award of attorney fees for an abuse of discretion.
Miller, 180 Wash. App. at 820. Washington follows the American rule "that attorney
fees are not recoverable by the prevailing party as costs of litigation unless the
recovery of such fees is permitted by contract, statute, or some recognized
ground in equity." McGreevy v. Or. Mut. Ins. Co., 128 Wash. 2d 26, 35 n.8, 904
P.2d 731 (1995). The CPA and IFCA both permit an award of attorney fees and
costs to the prevailing party. RCW 19.86.090; RCW 48.30.015(3). The
"prevailing party" in a lawsuit is the one who receives a judgment in his favor.
1
Am. Fed. Say. & Loan Ass'n of Tacoma v. McCaffrey, 107 Wash. 2d 181, 194-95,
728 P.2d 155 (1986).
Attorney fees and costs may also be awarded pursuant to Olympic
Steamship Co. v. Centennial Insurance Co., 1.17 Wn.2d 37, 52-53, 811 P.2d 673
(1991). Under Olympic Steamship,"an award of fees is required in any legal
action where the insurer compels the insured to assume the burden of legal
action, to obtain the full benefit of his insurance contract, regardless of whether
the insurer's duty to defend is at issue." 117 Wash. 2d at 53. "The equitable basis
established in Olympic Steamship for attorney fee awards is limited to efforts
necessary to establish coverage for claims against the insured and is based on
the rights of the insured." Polygon Nw. Co. v.I Am. Nat'l Fire Ins. Co., 143 Wn.
App. 753, 795-96, 189 P.3d 777(2008).
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No. 74717-7-1/54
Here, the trial court found that Plaintiffs were the prevailing parties on all
causes of action, including the CPA, IFCA, bad faith, contract, and negligence.32
The trial court found that the claims and defenses "involved a common core of
facts, evidence, testimony and theories, in which the time devoted to discovery,
pretrial motions and preparation, trial and post-trial matters of this intertwined
action cannot be reasonably segregated." The trial court awarded Vose and PT
attorney fees totaling $400,812.50 and costs totaling $4,800.00.
Vose and PT were the prevailing parties on all claims advanced against
and by Fireman's. Accordingly, Vose and PT may recover attorney fees and
costs associated with advancing the CPA and IFCA claims. RCW 19.86.090;
RCW 48.30.015(3). Because the trial court found that these claims were
intertwined with and inseparable from the other claims advanced by Vose and
PT—a finding supported by the record—it did not err by declining to parse out the
fees and costs associated with each individual claim. Miller, 180 Wash. App. at
823-24.
Fireman's also contends that the trial Court erroneously awarded Vose and
PT attorney fees associated with the arbitration. There is no indication in the
record that the trial court awarded Vose and PT fees or costs associated with the
underlying arbitration.33 However, even if it did, we conclude that such an award
32 Fireman's first contends that the trial court's judicial estoppel rulings should have
served as a basis to deny an attorney fee award to Vose and PT. Because we reverse that
decision, we need not further discuss this theory.
I
33 The only citation to the record that Fireman's provides concerns the trial court's award
of costs to Gosney. The trial court noted that its award to Gosney "does not include costs
associated with the underlying arbitration & reasonableness hearing." Contrary to Fireman's
assertions, this does not establish that the trial court awarded Vose and PT costs associated with
the underlying arbitration.
- 54 -
No. 74717-7-1/55
is tenable pursuant to Olympic Steamship. AS discussed herein, Vose and PT
assigned all claims and causes of action to Gosney in the settlement agreement.
But before Gosney could step into the shoes of Vose and PT and pursue her
claims against Fireman's, Plaintiffs were forced into an arbitration proceeding
compelled by Fireman's. The fees and costs associated with this arbitration were
thus necessary predicates for Vose and PT to receive the benefit of their
insurance contract. Olympic S.S., 117 Wash. 2d at 53.
There was no abuse of discretion.
Adjustments to the lodestar are reserved for rare occasions. Miller, 180
Wash. App. at 825. Although the lodestar presumptively represents a reasonable
fee, "occasionally a risk multiplier will be warranted because the lodestar figure
does not adequately account for the high risk nature of a case." Chuonq Van
Pham v. Seattle City Light, 159 Wash. 2d 527, 542, 151 P.3d 976(2007).
Here, the trial court found that a lodestar multiplier was warranted.
A lodestar multiplier of 1.25 is appropriate given the
contingent representation and risks this matter presented at the
inception and throughout the nearly 7 years (or beyond) of non-
payment, and due to the exceptional quality of representation
provided to the plaintiffs by their counsel. Although the judgment is
substantial, it has not been paid. Further, at the time of pursuing
the claims, and accepting and defending the cross-claims, the risk
of non-payment was significant.
The trial court's ruling was sound. Plaintiffs' attorneys have received no
payment pursuant to the claims advanced against Fireman's during the many
years that this complex litigation has stretched on, and have faced a high degree
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No. 74717-7-1/56
of risk that they would never be paid at all. The trial court did not abuse its
discretion by utilizing a modest lodestar multiplier.
We reverse the trial court's order on judicial estoppel, affirm in all other
respects, and remand the matter to the trial court for any necessary proceedings
consistent with this opinion.34
We concur:
34 Gosney, Vose, and PT also request an award of appellate fees. Vose and PT are
entitled to an award of appellate fees pursuant to the CPA. ROW 19.86.090; Ewing v. Glogowski,
198 Wash. App. 515, 526, 394 P.3d 418(2017). Gosney is entitled to an award of appellate fees
pursuant to Olympic Steamship, 117 Wash. 2d at 53. Upon proper application, a commissioner of
our court will enter an appropriate award.
- 56 -
LEACH, J.(dissenting) — I dissent because:' disagree with the trial court's decision
to add $10.8 million to the jury's verdict. While no special verdict question asked the jury
whether Fireman's Fund Insurance Company proved that its breach of its duty to defend
did not harm the plaintiffs, the jury's answers to the special verdict questions answer this
question and show that the jury found this breach caused no harm to plaintiffs. For this
reason, the trial court improperly added $10.8 million to the jury's damage award.
The following review of the jury instructions and the jury's answers to the special
verdict form questions show that the jury followed the court's instructions and did not
intend to award this amount because it affirmatively found that Fireman's breach of its
duty to defend and/or settle did not harm plaintiffs Pizza Time Inc. and Pizza Time
Holdings of Washington (collectively Pizza Time) or John Vose.
Plaintiffs presented evidence supporting several theories of Fireman's failure to act
in good faith. In addition to its breach of its duty to defend and/or settle, plaintiffs
presented evidence of Fireman's failure to timely respond to pertinent communications,
failure to investigate, and failure to obtain its insured's consent before pursuing a trial
continuance.
Special verdict question la asked the jury whether the plaintiffs had proved all
elements of any or all of their claims. It also told the jury that the elements were described
in the jury instructions. The jury answered yes for each of the plaintiffs' five claims,
1
including breach of duty of good faith.
Special verdict question lb asked whether the jury found a breach of the duty to
defend or settle, to which the jury also answered Yes. This had significance to the jury.
No. 74717-7-1/ 2
Gosney v. Fireman's Fund Ins. Co. — Dissent
Instructions 17, 53, and 54 provided a different rule for determining damages for a breach
of this duty than the rule for other breaches of the duty of good faith.
Instructions 17 and 53 each provided in pa11,
If you find that Fireman's failed to act in good faith by breaching its
duty to defend and/or settle, then the law presumes that Plaintiffs Pizza
Time and Mr. Vose were injured and that the failure to act in good faith was
the proximate cause of this injury. You are bound by that presumption
unless you find that Fireman's failure to act in good faith did not injure
Plaintiffs Pizza Time and Mr. Vose.
Instruction 54 provided in part,
If you find for the Plaintiffs on their claim that Fireman's
Fund/American Insurance Company failed to act in good faith as to duty to
defend or settle, your verdict must include the amount of the iudgment on
the arbitration award, unless you further find for Fireman's Fund/American
Insurance Company on its affirmative defense that the settlement was the
product of fraud or collusion. The judgment amount is $10,800,289, plus
interest.
As to the duties to defend and/or settle, Fireman's Fund/American
Insurance Company has the burden of proving that any act of rsicl failure to
act in good faith did not iniure harm, damage or prejudice the plaintiffs.
Instructions 17, 53, and 54 all direct the jury to treat a breach of the duty to defend
and/or settle differently from other breaches of the duty of good faith when determining
damages. This explains in part why the court inclUded question lb in the special verdict
form.
In addition, the court instructed the jury about an affirmative defense to Fireman's
breach of the duty to defend and/or settle. Instruction 52, about waiver, provided in part,
In this case, Fireman's duty to provide a defense to Plaintiffs Pizza
Time and Mr. Vose was excused if Fireman's has proved, by a
-2-
No. 74717-7-1 / 3
Gosney v. Fireman's Fund Ins. Co. — Dissent
preponderance of the evidence, that Plaintiffs Pizza Time and Mr. Vose
waived their right to that performance under the contract.
Special verdict question 31 asked the jury whether the defendants had proved all
elements of any or all of their defenses. The jury answered yes for the defense of waiver
and no for all other defenses, including fraud and collusion. This means that the jury
found that Pizza Time and Vose waived Fireman's duty to provide a defense. Instructions
17 and 53 defined the elements of the breach of good faith claim.2 These instructions
distinguished the failure to defend and/or settle from the other breach of good faith claims.
The court told the jury it must presume that Fireman's breach of the duty to defend and/or
settle harmed Pizza Time and Vose unless Fireman's proved this breach did not injure
Pizza Time and Vose. For the other breach of good faith claims, the plaintiffs had to
prove "[t]hat Plaintiff Pizza Time or Mr. Vose was damaged."
Because the jury found that Fireman's had proved that Pizza Time and Vose had
waived Fireman's duty to defend and/or settle, the jury necessarily also found that
Fireman's had proved that its breach of this duty did not harm Pizza Time or Vose. As a
result, plaintiffs had not proved a breach of good faith claim based on a breach of the duty
to defend and/or settle. The trial court and the majority both fail to account for the jury's
waiver decision.
1Special verdict question 2 asked about contributory negligence. The jury found
that the defendants had not proved the plaintiffs were contributorily negligent.
2These instructions are identical. Fireman's objected to the court giving the same
instruction twice. The record does not disclose the trial court's reason for doing so.
-3-
No. 74717-7-114
Gosnev v. Fireman's Fund Ins. Co. — Dissent
Instruction 54 required the jury to include the judgment amount in its verdict if it
found for the plaintiffs "on their claim that Fireman's Fund/American Insurance Company
failed to act in good faith as to duty to defend."
Special verdict question 4a asked the jury what amount of damages it found that
plaintiffs Vose and Pizza Time incurred. The jury answered,
Damages:
Negligence: $100,000.00
Breach of Contract: $ 20,000.00
Breach of Duty of Good Faith: $300,000.00
Breach of Consumer Protection Act: $ 20,000.00
Breach of Insurance Fair Conduct Act: $ 20,000.00
Special verdict question 4b asked the jury whether these damage amounts
included the $10 million judgment. The jury answered no.
No special verdict question asked the jury whether Fireman's proved that its
breach of its duty to defend and/or settle did not harm the plaintiffs. But the jury's answers
to questions 1 b, 3, 4a, and 4b, when viewed in the context of the instructions as a whole,
answer this question. The jury found that Fireman's breached its duty to defend and/or
settle (answer to 1 b) but that Pizza Time and Vose waived performance of this duty
(answer to 3). If the jury followed instructions 17 and 53, as we must presume they did,
its decision not to include the judgment in its damage award for the breach of the duty of
-4-
No. 74717-7-1/ 5
Gosnev v. Fireman's Fund Ins. Co. — Dissent
good faith means two things. First, that the jury found this breach did not injure Pizza
Time or Vose. And second, that some other breach of this duty did injure them.
The jury's answers to the special verdict questions are consistent with each other
and demonstrate that the jury followed the court's instructions. Under these
circumstances, the trial court did not have the authority to add $10.8 million to the jury's
damage award.
The majority premises its contrary conclusion on a conflation of the jury's answer
to special verdict question lb. The majority relies in part on the structure of questions la
and lb for its analysis (answers included):
QUESTION la: Plaintiffs Claims
Have the Plaintiffs proven all elements of any or all of their claims as to the
Defendants? (The elements of these claims are described in the
accompanying Jury Instructions.)
ANSWER: (Check "yes" or "no")
Negligence X Yes No
Breach of Contract X Yes No
Breach of Consumer Protection Act X Yes No
Breach of the Insurance Fair Conduct Act X Yes No
Breach of Duty of Good Faith X Yes No
Question lb
If you answered "yes" to Question 1a as to Breach of Duty of Good
Faith, did you find a breach of the duty to defend or settle?
X Yes No
-5-
No. 74717-7-1/6
Gosney v. Fireman's Fund Ins. Co. — Dissent
The majority incorrectly concludes that the jury's answer to question lb means that
the jury found that Fireman's breach of the duty to defend or settle harmed Pizza Time
and Vose. 1 disagree.
The majority equates a finding of breach of a duty with a finding of all elements
required to prove a claim of breach of Fireman's failure to act in good faith as to its duty
to defend and/or settle, including the element of liarm. To support its decision to ignore
the plain language of question 1 b, the majority 'offers a structural analysis: the two
questions are designated la and lb instead of 1 and 2. According to the majority, this
means that they are "interrelated questions" rather than "separate and distinct questions"
and question lb thus really asks whether plaintiffs have proved all elements of a breach
of the duty to defend and/or settle claim.
This analysis has at least two flaws. First, it ignores the well settled rule that the
use of different words generally reflects an intent to have a different meaning. The court's
use of the words "all elements" in question la and "breach" in question lb would generally
be understood to reflect different meanings. Notably, the trial court, in its memorandum
opinion, did not say that it intended the meaning attributed to it by the majority. Second,
it ignores the history of the special verdict form's drafting.
1
The court drafted the form given to the jury using the defendants' proposed verdict
form. Questions 1, 2, and 3 of the defendants' proposed form mirrored questions la, 2,
and 3 of the court's form. The court chose to insert a question between 1 and 2, so it
renumbered question 1 as la and inserted a question lb. It did the same thing when it
-6-
No. 74717-7-1 /7
Gosney v. Fireman's Fund Ins. Co. — Dissent
inserted question 4b, renumbering 4 as 4a.3 This allowed the court to avoid renumbering
the other questions and permitted the parties to 'discuss issues about these questions
using the same number for the proposed verdict and the court's form. Unfortunately, the
court's conferences with the parties about instructions were held after hours and off the
record. So we have no additional information about the verdict form's history.
The majority also contends that it would ,not make sense for the court to ask
whether it had found a breach of the duty to defend rather than whether it had found all
elements of the corresponding tort proved. But the record provides multiple explanations.
The parties contested whether the presumed injury rule described in instructions 17 and
53 and the presumed damage rule described in instruction 54 applied to all breaches of
an insurance company's duty of good faith or just to a breach based on a failure to defend
and/or settle. To preserve this issue for appeal, the court needed to make a record about
which duty of good faith was breached and whether the jury's damage award included
the amount of the judgement. This explains questions lb and 4b, both inserted by the
court into the defendants' proposed verdict form.
I agree with the majority's resolution of the remaining issues that it resolves.
3 Thecourt also modified defendants' proposed question 4 and omitted their
proposed question 5.
-7-