Safeco Insurance Company, / X-res. v. Ryan E. Miller, / X-app. ( 2014 )

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
RYAN E. MILLER, individually,
No. 68594-5-1
Respondent/
Cross-Appellant, DIVISION ONE
PATRICK J. KENNY, individually,
Defendant,
PUBLISHED OPINION
and
FILED: April 28, 2014
SAFECO INSURANCE COMPANY,
Appellant/
Cross-Respondent.
Becker, J. — In an insurance bad faith case, the amount of a reasonable
covenant judgment sets a floor, not a ceiling, on the damages a jury may award.
We affirm a jury verdict awarding $13 million in damages to the assignee of the
bad faith causes of action where the total net amount of the covenant judgment
was $4.15 million.
This appeal arose out of an automobile accident on August 23, 2000.
Patrick Kenny, the driver at fault, was driving a 1994 Volkswagen Passat in
Alberta, Canada, when he rear-ended a cement truck. The accident injured his
three passengers: Ryan Miller, Ashley Bethards, and Cassandra Peterson. The
No. 68594-5-1/2
four teenagers were close friends who had attended Anacortes High School and
were taking a road trip before starting college at the University of Washington.
The Passat belonged to Cassandra Peterson. Kenny had permission to
drive it and was covered for liability under the car insurance policy issued to
Peterson's parents by appellant Safeco Insurance Company. Within days of the
accident, Safeco had information that the injuries were severe. Safeco defended
Kenny without a reservation of rights.
Miller, who had experienced a head injury and was unable to start college
as planned, eventually retained counsel. As a preliminary to initiating settlement
discussions, Miller contacted Safeco in October 2001 to inquire about the policy
limits. Safeco did not divulge the policy limits, claiming that the Petersons had
not given their permission—a point that would later be disputed at trial. Miller
forced the issue by filing suit against Kenny on December 20, 2001. This made
the policy limits discoverable.
In January 2002, Safeco disclosed that the Petersons had liability policy
limits of $500,000 per person and per accident, and umbrella policy limits of $1
million. The policy also had underinsured motorist (UIM) coverage that was
potentially available to the injured passengers. Safeco represented that the limits
of the UIM coverage were only $100,000 due to an alleged prior rejection by
Peterson's mother of UIM limits of $500,000.
On July 1, 2002, Miller sent Safeco a letter demanding a policy limits
settlement. The letter called attention to the "substantial" risk of an excess
No. 68594-5-1/3
judgment.1 Peterson had already sent Safeco a settlement demand for
$350,000. Shortly thereafter, Safeco received a demand of $1.25 million from
Bethards, who had suffered a head injury.
On August 29, 2002, Kenny's appointed defense counsel Vickie Norris
wrote to the Safeco adjuster, pointing out that the cumulative settlement
demands exceeded the policy limits. On behalf of Kenny, Norris demanded that
Safeco tender the policy limits into the registry of the court in exchange for a
release and hold harmless from the claimants.2
Safeco's adjuster responded by letter saying that with the information
received so far, "we do not see the combined value of the injuries in excess of
the policy limits."3 The adjuster tendered to Norris only the $500,000 in liability
limits.
On November 8, 2002, Norris wrote to the three claimants on behalf of
Kenny, tendering to them the $500,000 she had received from Safeco pending
agreement by the claimants on how to divide it. She offered that Kenny would
assign "any bad faith claims that he may have against Safeco" in exchange for
the claimants' agreement not to execute or enforce above all available policy
limits.4
The trial date for Miller's suit against Kenny was set for June 2003. In
March 2003, Safeco authorized Norris to tender the umbrella policy limits of $1
1 Exhibit 125.
2 Exhibit 143; Clerk's Papers at 675.
3 Clerk's Papers at 676.
4 Exhibit 155.
No. 68594-5-1/4
million, to be added to the $500,000 in liability limits, in exchange for a release of
all claims against their insureds.5 This offer came too late. Kenny was facing the
likelihood of an excess judgment at the upcoming trial. Kenny acted upon advice
from Norris and retained attorney Jan Peterson to attempt to negotiate a global
settlement with the three passengers.
The settlement agreement was achieved in May 2003.6 Kenny had $1.8
million of insurance proceeds available ($300,000 from his parents' State Farm
policy in addition to the $1.5 million from the Petersons' Safeco policy). Kenny
agreed to pay the $1.8 million to Miller, Bethards, and Peterson, through the
mechanism of a partial judgment if necessary, and to assign to Miller his rights to
sue Safeco for bad faith and related claims or actions. In return, the three
claimants granted Kenny a covenant not to execute on or enforce any excess
judgment. It was agreed that the full amount of damages for the covenant
judgment would be determined by stipulation or arbitration, contingent upon a
reasonableness finding by the court.
Safeco intervened after being notified of the settlement agreement. A
reasonableness hearing became unnecessary when Safeco, in May 2005,
stipulated to an order finding that $4.15 million was the reasonable total net
amount for the stipulated covenant judgments.7 This was the amount of
damages that remained unpaid after the three passengers received the $1.8
million in insurance proceeds. All parties to the stipulated order agreed to treat
5 Clerk's Papers at 5896.
6 Exhibit 1; Clerk's Papers at 5828-5838.
7 Exhibit 15.
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No. 68594-5-1/5
the remaining $4.15 million as ifjudgment in that amount had been entered
against Kenny. The order allocated the damages as follows:
Claimant Gross Amount Net Amount
Miller $3,450,000 $2,575,000
Bethards $2,100,000 $1,425,000
Peterson $ 400,000 $ 150,000™
Safeco's stipulation reserved its defenses in future litigation. Thus, the
stage was set for bad faith litigation. Miller dropped his claims against Kenny.
As Kenny's assignee, he amended his complaint to allege bad faith against
Safeco, as well as negligence, consumer protection violations, breach of
contract, and other theories. Miller alleged that Safeco had damaged Kenny by
refusing to disclose the liability policy limits, thereby forcing the initiation of
Miller's lawsuit against Kenny, and by its subsequent actions in handling the
case. Miller also sued as the assignee of Cassandra Peterson's claim that
Safeco committed bad faith when it represented that her parents' policy provided
only $100,000 in UIM coverage for the Passat instead of $500,000.
Years of litigation followed. Miller's major theme was that Safeco could have
protected Kenny from exposure to an excess judgment by promoting a policy limits
settlement much earlier. Safeco's principal defense was that it never had a genuine
opportunity to settle the case because there were three claimants, and Miller
unreasonably and intransigently demanded all the policy limits for himself. This dispute
about who was to blame for the lack of settlement continued to the last witness on the
last day of trial, a Safeco adjuster whose deposition was presented in Miller's rebuttal
Exhibit 15; Clerk's Papers at 5898.
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No. 68594-5-1/6
case. The adjuster admitted that Safeco's failure to offer $1.5 million in August 2002
was not due to the position taken by the lawyers, but rather was due to Safeco's
assessment at the time that the three claims did not approach $1.5 million in value.
Safeco erected a secondary line of defense upon the terms of the settlement
agreement. Safeco argued that Kenny had failed to make a valid assignment of his
right to sue Safeco for bad faith. In the 2003 agreement with his passengers, Kenny
assigned to Miller "all rights, privileges, claims and causes of action that he may have"
against Safeco. At the same time, Kenny reserved to himself certain "claims for
damages."
c. Reservation: Defendant Kenny hereby reserves to himself
claims for damages for his personal emotional distress,
personal attorneys' fees, personal damages to his credit or
reputation and other non-economic damages which arise
from the assigned causes of action.'9]
Safeco argued that because of Kenny's reservation of his "claims" for personal
damages, Miller as Kenny's assignee could not prove harm, an essential element
in a bad faith case. On December 22, 2008, Safeco moved for dismissal on
summary judgment on this basis.
The trial court denied the motion for summary judgment. This court took
discretionary review and decided that summary judgment was properly denied
because what Miller and Kenny intended by the assignment and reservation
provisions of the agreement depended on the resolution of disputed extrinsic
evidence. Miller v. Kenny, noted at 158 Wash. App. 1049, 2010 WL 4923873, at
*7.
9 Exhibit 1.
No. 68594-5-1/7
When the case returned to superior court, Safeco moved to bifurcate the
trial. The trial court granted the motion. The jury would proceed to decide
Safeco's liability for bad faith only ifthe jury determined in the first phase that the
May 2003 settlement agreement was intended to permit Miller to recover Kenny's
damages caused by Safeco's alleged bad faith.
The first phase of trial began November 30, 2011. It was concerned solely
with contract interpretation. Safeco's factual position was that the agreement
reserved to Kenny the right to pursue damages. Safeco's legal theory was that if
the jury found Kenny retained that right for himself, then the assignment was
invalid because it was incomplete. Miller's position was that the agreement
retained for Kenny only an interest in any damages Miller recovered and that
Miller alone had the right to pursue Kenny's damages in a lawsuit against
Safeco.
The question posed to the jury was "Who gets to pursue Kenny's claims
for personal emotional distress, attorneys' fees, personal damage to credit and
reputation, and other non-economic damage?" The verdict form gave the jury
three possible ways to answer the question: Kenny, Miller, or both. The jury
checked "Miller" in their verdict on December 2, 2011.10 This verdict cleared the
way for the second phase of the trial, Safeco's alleged liability for dealing with
Kenny in bad faith.
The second phase of the trial began on December 5, 2011, before the
10 Clerk's Papers at 5702 (verdict); Report of Proceedings (Dec. 2, 2011) at 110-11.
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No. 68594-5-1/8
same jury. The trial court gave the jury 31 instructions.11 Instruction 8 explained
the significance of the verdict in the first phase of trial:
As a consequence of the first trial, Plaintiff Ryan Miller is the
assignee of the rights, claims and causes of action of Patrick Kenny
and Cassandra Peterson against Safeco.
An assignee steps into the shoes of the assignor and has all
of the rights of the assignors. The assignee's cause of action is
direct, not derivative. The assignee may sue in his or her own
name, and may speak in the place of the assignors.
As a result, Ryan Miller is the real party in interest and has
the exclusive right to recover all damages related to the assigned
causes of action. Who he has agreed to share those damages
with, and in what amounts, is not material to his right to recovery.1121
The jury was instructed on bad faith, negligence, breach of contract, and
consumer protection. Instruction 25 set forth standards pertinent to the central
claim of bad faith:
The duty of good faith requires an insurer to:
(1) Perform a reasonable investigation and evaluation of a
claim against its insured;
(2) If its investigation discloses a reasonable likelihood that
its insured may be liable, make a good faith effort to settle the
claim. This includes an obligation at least to conduct good faith
settlement negotiations sufficient to ascertain the most favorable
terms available and make an informed evaluation of the settlement
demand;
(3) Evaluate settlement offers as though it bore the entire
risk, including the risk of any judgment in excess of the policy limits;
(4) Timely communicate its investigations and evaluations,
and any settlement offers, to its insured; and
(5) If the settlement demand exceeds the insurer's policy
limits, communicate the offer to its insured, ascertain whether the
insured is willing to make the necessary contribution to the
settlement amount, and exercise good faith in deciding whether to
pay its own limits.
An insurer who fails to fulfill any of these duties falls to act in
good faith.
11 Clerk's Papers at 5373-5409.
12 Clerk's Papers at 5383.
No. 68594-5-1/9
On December 16, the jury returned a plaintiff's verdict of $13 million.13 Of
this award, $11.9 million was on the assignment from Kenny and $1.1 million was
on the assignment from Peterson.14
The judgments ultimately entered by the court against Safeco added
prejudgment interest of more than $7 million, postjudgment interest at 12
percent, $1.7 million in attorney fees and costs, and treble damages under the
Consumer Protection Act, chapter 19.86 RCW. The total was $21,837,286.73.
INTERPRETATION OF THE SETTLEMENT AGREEMENT
In the first phase of the trial, the jury's verdict determined that the 2003
settlement agreement authorized Miller, and only Miller, to carry on the litigation against
Safeco for Kenny's damages personal to himself. Safeco contends the trial court
committed reversible error by allowing the jury to hear evidence of the subjective intent
of the parties to the agreement.
Safeco's argument implicates the context rule of contract interpretation. Berg v.
Hudesman. 115 Wash. 2d 657, 801 P.2d 222 (1990); Hollis v. Garwall, Inc., 137 Wash. 2d
683, 695, 974 P.2d 836 (1999). To determine the intention of the parties to a contract,
the finder of fact may consider extrinsic evidence regarding the situation of the parties
and the circumstances under which the contract was executed. Berg, 115 Wash. 2d at
13 Clerk's Papers at 5410-5413.
14 The components were $9.65 million for Kenny's claim for bad faith; $750,000
for each of Kenny's assigned consumer protection, negligence, and contract claims
($9.65M + ($750,000 x 3 = $2.25 million) = $11.9 million); $350,000 for Cassandra
Peterson's assigned bad faith claim; and $250,000 for each of her assigned consumer
protection, negligence, and contract claims ($350,000 + ($250,000 x 3 = $750,000) =
$1.1 million).
No. 68594-5-1/10
669. Admissible extrinsic evidence does not include "evidence of a party's unilateral or
subjective intent as to the meaning of a contract word or term." Hollis, 137 Wash. 2d at
695; Ross v. Bennett, 148 Wash. App. 40, 46, 203 P.3d 383 (2008), review denied. 166
Wash. 2d 1012 (2009). The subjective intent of a party is generally irrelevant to the
interpretation of a contract if the intent of the instrument can be determined from the
actual words used. Hearst Commc'ns, Inc. v. Seattle Times Co.. 154 Wash. 2d 493, 504,
115 P.3d 262 (2005).
The phase one trial lasted two days. It began with opening statements on the
afternoon of November 30, 2011. Most of the evidence came in through Miller's first
witness, attorney Jan Peterson, who represented Kenny in the negotiations that
produced the settlement agreement. Peterson was the drafter of the agreement.
On direct examination, Peterson described Kenny's situation in the spring of
2003 as the trial of Miller's personal injury suit drew near. Peterson testified that
because of Safeco's failure to seek out an early settlement, Kenny faced the likelihood
of an excess judgment at the upcoming trial. He also testified that one of Safeco's
attorneys had threatened to withdraw Kenny's coverage if Kenny assigned his bad faith
claims to Miller.
Peterson was asked what he intended in drafting certain parts of the settlement
agreement, including the assignment and reservation provisions. Safeco objected that
"personal intentions are irrelevant." The trial court ruled that "Mr. Peterson can testify
as to what he did and why he did it." Peterson answered that the purpose of the
agreement was to protect Kenny from excess judgments and to preserve to Kenny "the
options of recovering damages, personal to him." He testified without objection that the
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No. 68594-5-1/11
structure of the agreement reflected the intent that Miller—not Kenny—would go forward
with the assigned causes of action against Safeco.
Peterson was asked what he "meant for this document to speak" when he drafted
the assignment and reservation provisions. This time, Safeco objected that Peterson's
personal intentions were irrelevant unless they were communicated to Safeco. The trial
court properly overruled the objection. As the testimony showed, Safeco was not a
party to the agreement and had not been involved in negotiating it. The admissibility of
a drafter's testimony does not depend upon communication with an entity not a party to
the negotiations. Peterson answered that the assignment meant Miller had the right to
bring the bad faith action, and Kenny did not have an obligation to bring a separate bad
faith action.
On cross-examination, Safeco tried to elicit Peterson's agreement that the
reservation clause meant Kenny had reserved the right to pursue his causes of action
against Safeco. Peterson's answers distinguished between the causes of action, which
he said Kenny had assigned, and the claims for damages, which he said Kenny had
reserved. This distinction went to the ultimate issue the jury was being asked to decide.
On redirect, Peterson repeated it without objection.
At the end of redirect, Peterson was asked to state his purpose in drafting the
agreement. Was his purpose to allow Miller and Kenny to pursue the bad faith action
together and share the recovery, or was it to allow each of them to pursue the bad faith
claim independently at double the expense? Safeco objected: "The witness can't
testify to his subjective purpose or intent. The document speaks for itself." The court
ruled that Peterson "may testify as to what his intent was when he drafted the
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No. 68594-5-1/12
document." Peterson answered that having Miller and Kenny each pursuing a bad faith
action independently was "not what we wanted for Mr. Kenny."
After Peterson, Miller and Kenny testified briefly. The trial court sustained
Safeco's objection when Kenny was asked about his intent. However, over objection,
the court permitted Kenny to answer a question about "what [he] expected to occur with
the settlement agreement." Kenny answered, "My expectation was that Iwas assigning
a cause of action to Ryan Miller. After assigning that cause of action, if it was found that
Safeco had acted in bad faith towards me, I would still be entitled to claim a portion of
those damages." A similar question was asked soon after, and again the court
overruled Safeco's objection:
Q. Has there ever been any question in your mind as to the fact
that, with the assignment that you provided, that Ryan Miller was entitled
to have the right to sue Safeco in your behalf and recover all the damages
and share those with you ifthere is a recovery?
[Kenny:] No doubt.
[Safeco]: Objection.
THE COURT: Overruled.
The closing arguments reiterated the themes that emerged from Peterson's
testimony. Miller emphasized the assignment language. He argued that the agreement
made sense only if it was he, not Kenny, who had the right to pursue for both of them
the personal damages that arose from the assigned causes of action. Safeco
emphasized the reservation clause: Did Kenny assign everything or did he reserve
certain damages unto himself? "If he reserved unto himself certain damages, it cannot
be proved that Patrick Kenny assigned all."
The jury's verdict sided with Miller. The jury determined that Miller, and only
Miller, was entitled to pursue Kenny's claims for personal damage.
12
No. 68594-5-1/13
On appeal, Safeco contends that Peterson and Kenny both provided evidence of
subjective intent that should have been excluded under Hollis.
The line between permissible evidence of context and impermissible evidence of
subjective intent is not bright. Under Hollis, evidence of a party's unilateral or subjective
intent as to the meaning of a contract word or term is inadmissible. Hollis, 137 Wash. 2d at
695. We have held that extrinsic evidence is admissible to show the intent of a drafter
so long as it is not used to change the terms of an agreement. Saunders v. Meyers,
175 Wash. App. 427, 440, 306 P.3d 978 (2013). In another case, we have applied the
Hollis prohibition to exclude evidence of the subjective intent of the drafter of a
restrictive covenant. Ross, 148 Wash. App. at 47-48.
Although Peterson drafted the agreement and was not himself a party, some of
Safeco's objections to questions asked of Peterson arguably could have been sustained
under Ross. Yet Safeco allowed similar questions to go by without objection, and
Safeco itself asked Peterson questions about what the agreement meant. We therefore
decline to go through each ruling the trial court made and decide which ones, if any,
were in error. "Admission of testimony that is otherwise excludable is not prejudicial
error where similar testimony was admitted earlier without objection." Ashley v. Hall,
138 Wn.2d 151,159, 978 P.2d 1055 (1999).
The trial court actively policed the questioning of the witnesses with the Hollis
rule in mind ("[l]f the contract says blue, a person can't say but what I meant was not
blue, I meant red.")15 Even if some of the testimony went beyond supplying context for
the agreement, the court did not permit the witnesses to read language into the
15 Report of Proceedings (Dec. 1, 2011) at 130.
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No. 68594-5-1/14
agreement that was not there. That is the essential concern of Hollis—to exclude
extrinsic evidence that "would show an intention independent of the instrument" or
"would vary, contradict or modify the written word." Hollis, 137 Wash. 2d at 695.
Miller and Safeco offered competing interpretations of the agreement based on
the ambiguity created by the assignment and reservation provisions. Their competing
interpretations were both rooted in the written words of the agreement. Both parties
properly focused on the key words of the agreement—"assignment," "reservation,"
"claim," and "cause of action." Miller did not ask the jury to interpret the agreement as
including words not found in it. Cf. Seaborn Pile Driving Co., Inc. v. Glew. 132 Wash. App.
261, 270-71, 131 P.3d 910 (2006) ("although Seaborn may have intended the offer to
include attorney fees, that intention was not expressed in the contract as written"),
review denied. 158Wn.2d 1027(2007).
Safeco does contend that Kenny's testimony directly contradicted the written
words of the reservation provision, in violation of Hollis. This argument fails because it
assumes the result. This court's previous decision on discretionary review determined
that the agreement had an ambiguity because Kenny assigned his causes of action and
at the same time reserved claims for damages to himself. Thus, the reservation
provision did not have an unambiguous meaning that Kenny's testimony could
contradict. The point of the phase one trial was to find out what the reservation
provision meant.
To the extent that testimony about intention and purpose was improperly
admitted, we reject Safeco's argument that the error was prejudicial. An erroneous
evidentiary decision is reversible error only if "it is reasonable to conclude that the trial
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No. 68594-5-1/15
outcome would have been materially affected had the error not occurred." Lutz Tile,
Inc. v. Krech, 136 Wash. App. 899, 905, 151 P.3d 219 (2007), review denied. 162Wn.2d
1009(2008).
Peterson was an important witness. His testimony was a tutorial on the
pressures faced by an insured defendant when he has caused damage exceeding his
policy limits and his insurer refuses to tender policy limits. Peterson's answers were
typically more circumspect than the sometimes leading questions posed to him on direct
and cross. Virtually everything he said was clearly admissible and highly relevant
extrinsic evidence about the circumstances leading up to the agreement, the context in
which the parties signed it, and their subsequent acts and conduct.
The interpretation proposed by Safeco was strained: that despite the assignment
language, Kenny had reserved the right to bring his own bad faith suit against Safeco.
The difficulty with Safeco's position was noted by this court on discretionary review:
"Safeco's reading fails to harmonize the assignment and reservation provisions. It is
neither logical nor reasonable that the parties would intend to assign 'all rights,
privileges, claims and causes of action,' including the bad faith claim, and then defeat
the assignment's purpose by retaining an essential element of the bad faith cause of
action in the reservation provision." Miller, 2010 WL 4923873 at 6.
The reservation by Kenny of his "claims for damages .. . which arise from the
assigned causes of action" was an unusual feature of the agreement, one we have not
seen in similar cases. It is not surprising that Safeco challenged it. But it is also not
surprising that the jury gave the agreement a realistic interpretation that would serve the
interests of both Miller and Kenny given the situation they were in. Peterson educated
15
No. 68594-5-1/16
the jury about the legal and practical realities of the situation: assignment of a bad faith
claim permits a settling defendant like Kenny to escape from the burdens of litigation
and liability while giving an injured plaintiff like Miller the opportunity to secure adequate
compensation not otherwise available from the settling defendant. Given the solidity of
Peterson's testimony and the scarcity of countervailing evidence, we do not see a
reasonable possibility that the outcome of the trial's first phase would have been
different ifthe specific excerpts challenged by Safeco had been excluded.
Safeco raises a related claim of instructional error in phase one. The trial court
gave instruction 5, a pattern instruction on contract interpretation. See WPI 301.05.
Drawn from Berg, the pattern instruction is appropriate for use "when the jury must
decide the intended meaning of contract language." 6A Washington Practice:
Washington Pattern Jury Instructions: Civil 301.05 note on use at 204 (6th ed.
2012) (WPI). Instruction 5 told jurors to
determine the intent of the contracting parties by viewing the contract as a
whole, considering the subject matter and apparent purpose of the
contract, all the facts and circumstances leading up to and surrounding the
making of the contract, the subsequent acts and conduct of the parties to
the contract, and the reasonableness of the respective interpretations
offered by the parties.
Safeco assigns error to the trial court's refusal to give, in addition, an instruction
based on WPI 301.06. As modified and proposed by Safeco, it read as follows:
16
No. 68594-5-1/17
If you find that all of the provisions of an agreement between Ryan
Miller and Patrick Kenny are contained in the Settlement Agreement and
Assignment of Rights, Judgment and Covenant ("the Settlement
Agreement"), and that the Settlement Agreement was intended by all
parties as their final agreement on the subjects addressed in it, then you
may not consider evidence outside the written document to add to,
subtract from, vary, or contradict that written document unless you also
find that terms were included in the document as a result of fraud or
mutual mistake.
However, if you find that such written document was not intended to
be a complete expression of all of the terms agreed upon by those parties,
that is, that the document does not contain all of the terms of their
agreement, then you may also consider evidence of the circumstances
surrounding the making of the agreement to supply additional terms of the
agreement between the parties, but only if they are not inconsistent with
the provisions of the written document.
An appellate court reviews de novo alleged errors in a trial court's instructions to
the jury. Moratti ex rel. Tarutis v. Farmers Ins. Co. of Wash., 162 Wash. App. 495, 505,
254 P.3d 939 (2011). review denied, 173Wn.2d 1022. cert, denied. 133 S. Ct. 198
(2012). "Instructions are inadequate if they prevent a party from arguing its theory of
the case, mislead the jury, or misstate the applicable law." Barrett v. Lucky Seven
Saloon. Inc., 152 Wash. 2d 259, 266, 96 P.3d 386 (2004). A court's omission of a
proposed statement of the governing law will be reversible error where it prejudices a
party. Barrett, 152 Wash. 2d at 267.
WPI 301.06 is for use "when there is a written contract and a factual issue exists
as to whether the contract is integrated." WPI 301.06 note on use at 207. The trial
court declined to give Safeco's proposed instruction because it required the jury to first
decide whether the settlement agreement was or was not integrated.16 Integration was
16 Report of Proceedings (Dec. 2, 2011) at 61.
17
No. 68594-5-1/18
not an issue; neither party contended that the settlement agreement was not integrated.
The court rightly determined the instruction would be confusing.
Safeco contends that the instruction, even if imperfect, would at least have told
jurors that extrinsic evidence cannot be used to contradict the terms of a written
agreement. But as discussed above, extrinsic evidence was not admitted to contradict
the terms of the settlement agreement. Safeco has not shown that it was prejudiced by
the court's failure to give the proposed instruction. Instruction 5 adequately permitted
Safeco to argue its theory that Miller's assignment to Kenny did not include Kenny's
own damages and therefore only Kenny had the right to pursue them.
DAMAGES EXCEEDING THE COVENANT JUDGMENT
Miller moved for partial summary judgment to establish that the order
stipulating $4.15 million as the reasonable net amount of the covenant
"judgment" was not a ceiling on damages but merely a floor—"the minimal
amount of harm if Safeco is liable."17 The trial court granted the motion, and the
ruling was carried out during phase two of the trial in the instruction on the
measure of damages. The jury was instructed that if it found Safeco acted in bad
faith as to Kenny, it must include the $4.15 million set by the stipulated order and
should consider other damages:
If your verdict is for the plaintiff on Patrick Kenny's claim that
Safeco failed to act in good faith, then you must determine the
amount of money that will reasonably and fairly compensate the
plaintiff for such damages as you find were proximately caused by
Safeco's failure to act in good faith.
17 Clerk's Papers at 3468.
18
No. 68594-5-1/19
Ifyou find for the plaintiff on Patrick Kenny's claim for failure
to act in good faith your verdict must include the following
undisputed items:
The net amount of the Stipulated Order Re: Reasonableness
of Settlements for $4,150,000.
In addition, you should consider the following past and future
elements of damages:
1. Lost or diminished assets or property, including value of
money;
2. Lost control of the case or settlement;
3. Reasonable value of expert or other costs or reasonable
attorney fees incurred for the private counsel retained by
Patrick Kenny;
4. Damage to credit or credit worthiness;
5. Effects on driving or business insurance or insurability;
6. Emotional distress or anxiety.
The burden of proving Patrick Kenny did not suffer damages
rests upon Safeco. It is for you to determine, based upon the
evidence, whether any particular element has been proved by a
preponderance of the evidence.
Instruction 30. The elements of damage enumerated in items 1 through 6
ultimately accounted for $7.75 million of the damage award, on top of the
obligatory $4.15 million.
Safeco contends the jury should not have been permitted to award
damages exceeding the net amount set by the stipulated order.
"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 an action for bad faith." Butler, 118 Wash. 2d at
389. In previous cases, insurers have argued that when an insured obtains from
the injured party a covenant not to execute on a stipulated judgment, the insured
has suffered no harm and consequently has no bad faith claim to assign. See,
e.g.. Butler. 118 Wash. 2d at 396; Besel v. Viking Ins. Co. of Wise. 146Wn.2d730,
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No. 68594-5-1/20
736, 49 P.3d 887 (2002). The Supreme Court has steadfastly rejected this
argument. Butler. 118 Wash. 2d at 396-400. In the context of a third party's claim
against an insured, once the insured meets the burden of establishing bad faith,
a rebuttable presumption of harm arises. Butler. 118 Wash. 2d at 390. Safeco
expressly states that the issue of presumed harm "is not before the Court here.
Rather, this case involves what damages are encompassed by a covenant
judgment settlement."18
If an insurer acts in bad faith, an insured can recover from the insurer the
amount of a judgment rendered against the insured, even if the judgment
exceeds contractual policy limits. Besel, 146 Wash. 2d at 735; Mut. of Enumclaw
Ins. Co. v. Dan Paulson Constr.. Inc., 161 Wash. 2d 903, 920, 169 P.3d 1 (2007).
As Besel recognizes, the "judgment rule" is the majority rule in the United States.
Besel, 146Wn.2dat735.
What occurred in this case is what occurred in Butler and Besel—a
covenant not to execute coupled with an assignment and settlement agreement.
This arrangement did not release Kenny from liability; it was simply "an
agreement to seek recovery only from a specific asset—the proceeds of the
insurance policy and the rights owed by the insurer to the insured." Butler. 118
Wash. 2d at 399, quoted in Besel. 146 Wash. 2d at 737.
Safeco argues that Besel limits recovery to the amount of a reasonable
covenant judgment—which in this case was the $4.15 million established by the
18 Brief of Appellant at 64.
20
No. 68594-5-1/21
order to which Safeco stipulated in May 2005. In Besel, the policy limits were
$25,000. Like in this case, a passenger (Besel) who had been injured in a car
accident settled with the insured driver by means of a stipulated covenant
judgment (for $175,000) and then, as assignee of the driver's claims against the
insurer, sued the insurer (Viking) for failure to settle. The trial court limited
Besel's potential recovery for the driver's bad faith damages to the contractual
policy limit of $25,000, which by that time Viking had already paid. Besel
appealed. The Court of Appeals acknowledged that under Butler, harm was
presumed and the insured's bad faith damages could exceed the policy limits.
Besel v. Viking Ins. Co. of Wise, 105 Wash. App. 463, 480, 21 P.3d 293 (2001),
reversed. 146 Wash. 2d 730, 49 P.3d 887 (2002). The Court of Appeals, however,
disagreed with Besel's argument that satisfaction of his stipulated judgment for
$175,000 was the appropriate remedy and instead remanded the case for the
extent of his damages to be determined at trial. Besel, 146 Wash. 2d at 482. The
Supreme Court granted Besel's petition for review and reversed and remanded
for entry of judgment reflecting the stipulated judgment amount of $175,000. The
court held that the amount of a covenant judgment, when found to be
reasonable, is the "presumptive measure of the insured's harm":
We hold the amount of a covenant judgment is the
presumptive measure of an insured's harm caused by an insurer's
tortious bad faith if the covenant judgment is reasonable under the
Chaussee criteria. [Chaussee v. Maryland Cas. Co., 60 Wash. App.
504, 803P.2d 1339. 812 P.2d 487, review denied. 117Wn.2d 1018
(1991).] This approach promotes reasonable settlements and
discourages fraud and collusion. Furthermore, using the amount of
a covenant judgment to measure tort damages in this context
makes sense in light of our long-standing requirement that such
21
No. 68594-5-1/22
settlements be reasonable. If a reasonable and good faith
settlement amount of a covenant judgment does not measure an
insured's harm, our requirements that such settlements be
reasonable is meaningless. Finally, the Chaussee criteria protect
insurers from excessive judgments especially where, as here, the
insurer has notice of the reasonableness hearing and has an
opportunity to argue against the settlement's reasonableness.
Besel, 146 Wash. 2d at 738-39.
According to Safeco, where Besel says the amount of a covenant
judgment is "the presumptive measure of an insured's harm," it means that the
insured's damages for the tort of bad faith are limited to the amount of damages
the insured caused to the third party, as measured by the covenant judgment.
As we read Besel, however, the reference to the "presumptive" measure of harm
is not a limitation. It does not appear that Besel claimed Viking's bad faith
conduct caused the driver any damages other than liability for the judgment, so
there was no reason for the court to announce a rule barring Besel, as the
driver's assignee, from recovering additional damages personal to the driver.
When Besel is read in context with the Court of Appeals decision that it reversed,
the proper interpretation of the above-quoted paragraph is that harm to the
insured is presumptively worth at least the amount of the covenant judgment—
not less. The Supreme Court implicitly confirmed this interpretation by explaining
in a recent case that "in the insurance setting, the presumptive amount is added
to any other damages found by the jury." Bird v. Best Plumbing Group. LLC. 175
Wash. 2d 756, 770, 287 P.3d 551 (2012) (emphasis added). The holding of Bird is
that a reasonableness hearing is an equitable procedure. The court stated,
"Here, there is no factual determination to be made on damages in the later bad
22
No. 68594-5-1/23
faith claim, at least not with respect to the covenant judgment." Bird, 175 Wash. 2d
at 772 (emphasis added). This sentence indicates the way is open for a jury to
make a factual determination of an insured's bad faith damages other than and in
addition to the covenant judgment.
Safeco proposes that "an insured should be put to an election. It must
either prove all of its damages or it may choose to confine any bad faith recovery
to the covenant judgment settlement amount. As a matter of law, it should not be
able to recover both."19 As authority, Safeco cites only former Justice James
Dolliver's dissent in Butler. Justice Dolliver's concerns did not persuade the
majority in Butler, nor did they prevail when considered again in Mutual of
Enumclaw Insurance Company, 161 Wash. 2d at 921.
Where the insured has caused damages clearly exceeding policy limits,
an insurer's failure to offer policy limits exposes the insured to the risk of an
excess judgment. Once it is determined that the insurer acted in bad faith by
failing to settle, typically the chief component of the insured's damage caused by
that failure will be the insured's liability to the third party. This component is
measured by the amount of the third party's covenant judgment against the
insured. However, the insured's damages may include as an additional
component the damages caused to him by the insurer's bad faith. Examples
include the potential effect on the insured's credit rating, damage to reputation,
loss of business opportunities, and loss of control of the case. Butler, 118 Wash. 2d
at 399, 392. Other examples are loss of interest, attorney fees and costs,
19 Brief of Appellant at 61.
23
No. 68594-5-1/24
financial penalties for delayed payments, and emotional distress, anxiety, and
fear. Anderson v. State Farm Mut. Ins. Co., 101 Wash. App. 323, 333, 2 P.3d 1029
(2000). review denied. 142 Wash. 2d 1017 (2001). Because bad faith is a tort, an
insured is not limited to economic damages. Anderson. 101 Wash. App. at 333,
citing Coventry Assocs. v. Am. States Ins. Co.. 136 Wash. 2d 269, 284-85, 961 P.2d
933(1998).
Miller, the assignee of Kenny's claims against Safeco, acquired all of
Kenny's rights as they existed at the time of assignment. Butler. 118 Wash. 2d at
399. Because Kenny had the right to sue Safeco for damages other than and in
addition to the amount of the covenant judgment, Miller acquired that right.
Safeco has not presented a coherent rationale based on policy or
precedent for limiting damages to the amount of the covenant judgment. A
covenant judgment, when found reasonable in a proceeding in equity, is the
presumed measure of damage only for the insured's liability to third parties. The
damages personal to the insured are determined by a finder of fact. The trial
court properly allowed the jury to consider various elements of damage sustained
by Kenny in addition to his liability to the passengers for the stipulated amount of
$4.15 million.
We conclude the trial court did not err in allowing the jury to find damages
in excess of the stipulated settlement.
24
No. 68594-5-1/25
UIM LIMITS
Early in the bad faith litigation, a dispute arose over the limits of
Peterson's underinsured motorist coverage. The court ruled that the UIM limits
were $500,000, not $100,000 as Safeco had represented. Whether Safeco
acted in bad faith in making that representation was left to the jury to decide.
Miller argued to the jury that Safeco misrepresented the UIM limits in bad faith
and, as a result, kept back proceeds that could have been used to settle
Peterson's claim and help protect Kenny.20
Safeco assigns error to the ruling that the limits were $500,000.
Washington law requires insurers to offer UIM coverage "in the same
amount as the insured's third party liability coverage unless the insured rejects all
or part of the coverage." RCW 48.22.030(3). "The Legislature, by the wording of
the UIM rejection clause, intended that a named insured decline UIM coverage
by an affirmative and conscious act and that such a rejection be in writing."
Clements v. Travelers Indem. Co.. 121 Wash. 2d 243, 254, 850 P.2d 1298 (1993);
RCW 48.22.030(4). Once the insured has signed such a rejection, it remains
valid upon subsequent renewals of the policy. RCW 48.22.030(4). But if the
insurer issues a new policy, it must again offer UIM coverage limits equal to the
liability limits. Johnson v. Farmers Ins. Co. of Wash.. 117 Wash. 2d 558, 570, 817
P.2d841 (1991).
20 See, e.g., Report of Proceedings (Dec. 5, 2011) at 37-38 (Miller's opening statement);
Report of Proceedings (Dec. 15-16, 2011) at 103, 123-25, 128-29 (closing argument).
25
No. 68594-5-1/26
From 1997 to 1999, the Petersons had an American States Insurance
policy with liability limits of $500,000 per person and per accident. In January
1997, Cassandra Peterson's mother signed a written partial waiver, selecting
UIM limits of $100,000 per person and $300,000 per accident. In April 1997, she
again signed the waiver selecting the lower limits.
In November 1999, the Petersons added Cassandra's Volkswagen Passat
to their American States policy. The UIM limits for the Passat alone were set at
$500,000, equal to the liability limits. The declarations page notes that "this
endorsement reflects the addition of the 1994 Volkswagen Passat eff. 11/3/99."
Safeco charged $42.00 for the UIM coverage on the Passat and $24.80 apiece
for two other vehicles. The Petersons paid the premium.
Safeco acquired American States in 1997. In early 2000, Safeco issued
the Petersons the policy that was in effect in August 2000 when the Passat,
driven by Kenny, rear-ended the cement truck. The policy listed the UIM limits
for all three vehicles as $100,000/$300,000 effective April 20, 2000. A page
entitled "Changes To Your Policy" advised the Petersons that the UIM limits
reflected their previous choice to have UIM coverage in an amount less than
liability coverage.
The amount of coverage you previously selected for protection
against uninsured and/or underinsured motorists was less than the
bodily injury liability coverage you selected, or you rejected the
coverage altogether. The choice you made has been reflected on
this replacement policy. Other limits and prices are available.
Safeco did not include a written waiver for the Petersons to sign. The Petersons
requested no changes. They paid the lower premium for the Passat's reduced
26
No. 68594-5-1/27
UIM coverage—$37.70, as compared to the previous premium of $42.00 for UIM
limits of $500,000.
The issue on appeal is whether the Safeco policy issued in early 2000 with
UIM limits of only $100,000 was a new policy requiring a written waiver or a
renewal policy not requiring a written waiver. Johnson adopted a materiality
standard to distinguish a new policy from a renewal policy. Torgerson v. State
Farm Mut. Auto. Ins. Co., 91 Wash. App. 952, 958, 957 P.2d 1283 (1998). Adding
an automobile to a policy is not by itself a material change creating a new policy.
Johnson, 117 Wash. 2d at 574. But changes in UIM coverage levels are material.
Torgerson. 91 Wash. App. at 960-61.
For the 1997 American States policy, Cassandra Peterson's mother
agreed in writing to UIM limits of $100,000. Safeco contends the 2000 policy
was a renewal of the 1997 policy because it maintained UIM coverage at the
same level. According to Safeco, the declarations page setting the Passat's UIM
limits at $500,000 when the Passat was added to the policy in 1999 was a
scrivener's error that should be disregarded.
Safeco cites American Commerce Insurance Company v. Ensley, 153 Wn.
App. 31. 220 P.3d 215 (2009), review denied. 169Wn.2d 1010(2010). In order
to keep her premiums low, Donna Ensley signed a waiver to lower her UIM
coverage from $500,000 to $50,000. Later, she cancelled the collision coverage
on one of her vehicles. The insurer mistakenly cancelled all coverage on that
vehicle. Ensley pointed out the mistake, and the insurer corrected it by
reinstating coverage on that vehicle other than collision. The insurer also
27
No. 68594-5-1/28
granted Ensley's request for a higher deductible. When Ensley's son was
seriously injured while riding as a passenger in another of Ensley's vehicles,
Ensley claimed that the changes made to the policy after her first waiver were
material and the reduction of UIM coverage to $50,000 was ineffective because
the insurer did not obtain a second written waiver. This court held that these
changes did not result in a new policy because the UIM coverage level did not
change after the first written waiver. Ensley, 153 Wash. App. at 41-42.
Safeco suggests that the policy issued to the Petersons in 2000 was
simply the correction of an earlier mistake, and like the correction of the mistake
in Ensley. it did not create a new policy. This argument fails. The insurer's
mistake in Ensley was not material and did not create a new policy, most
importantly because it did not affect the level of Ensley's UIM coverage. Ensley,
153 Wash. App. at 42. Therefore, Ensley's written waiver remained effective.
Here, the Petersons paid an extra premium for UIM coverage of $500,000
on their daughter's Passat in 1999. Whether this happened because they
requested it or because of a scrivener's error is immaterial; the essential fact is
that the Petersons paid to have limits of $500,000. The Safeco policy issued in
2000 reduced the UIM coverage on the Passat from $500,000 to $100,000.
Under Johnson and Torgerson, that reduction was a material change that
created a new policy.
The insurer has the burden of obtaining a knowing written rejection in
order to avoid the statutory requirement for UIM coverage. Clements, 121 Wash. 2d
at 255. Safeco did not obtain a knowing written rejection when it issued the
28
No. 68594-5-1/29
policy in 2000 with limits reduced back down from $500,000 to $100,000. The
trial court correctly determined that because Safeco did not obtain a written
waiver, the UIM limits were equal to the liability limits of $500,000.
The trial court did not decide that Safeco's investigation and disclosure of
the UIM limits was bad faith as a matter of law. The court ruled that material
issues of fact remained as to whether Safeco reasonably believed the reduced
UIM limits in the 2000 policy simply corrected a scrivener's error. The phase two
verdict specifically determined that Safeco failed to act in good faith with respect
to Peterson's UIM claim and thereby caused damage to her of $350,000. We
find no error in the court's decision to permit this issue to go to the jury.
ATTEMPT TO DEPOSE MILLER'S ATTORNEY
The introduction to Safeco's brief on appeal accuses Miller's attorney,
Ralph Brindley, of frustrating Safeco's reasonable efforts at settlement in a
deliberate attempt to set up a bad faith claim:
This case demonstrates how an insurer can be "set up" for a
bad faith claim. Too often, attorneys for claimants are not
interested in actually settling their clients' claims when they believe
that the applicable liability insurance limits are low compared to the
severity of the injuries at issue. Instead, they readily frustrate
settlement efforts, looking to trap the insurer in the handling of the
claim by manipulating events to set up the insurer for a bad faith
action by the insured, an action their clients receive by assignment
in the course of negotiating an inflated covenant judgment
settlement. That is precisely what happened here.
The insurer, in this case, Safeco Insurance Company of
Illinois ("Safeco"), was blamed for the lack of a settlement in the
underlying case between driver/insured Patrick Kenny and his
passengers, Ryan Miller, Ashley Bethards, and Cassandra
Peterson. Safeco made a concerted effort to eliminate Kenny's
exposure. But Safeco was faced with paying all liability insurance
to one of three injured claimants thereby leaving its insured with no
29
No. 68594-5-1/30
coverage for the remaining two claims, or declining to pay the full
limit to one of the three. It opted for the latter and was sued in bad
faith for the failure to settle.
Settlement was frustrated at every turn by Ralph Brindley,
Miller's lawyer. The trial court, however, refused to allow any
discovery regarding Brindley's role in frustrating Safeco's
settlement efforts on Miller's behalf and setting up Safeco for a bad
faith action.1211
Safeco claims that Brindley made unreasonable settlement demands, rebuffed
Safeco's attempts to facilitate mediation, and manipulated the other claimants
and their attorneys into signing the settlement agreement, all in order to put Miller
in the driver's seat for what turned out to be a lucrative bad faith claim. The issue
on appeal is whether the trial court unfairly prevented Safeco from questioning
Brindley about his strategy.
In February 2007, Safeco sent Brindley a notice of deposition and a
subpoena duces tecum for his correspondence, memorializations of
conversations, and other documents in the underlying Miller v. Kenny litigation.
As the defendant in the bad faith action, Safeco wanted to question Brindley
about the rationale behind his negotiation tactics, his understanding of the
provision of the settlement in which Kenny reserved his claims for personal
damages, and his motive for bringing Miller's suit against Kenny. On April 23,
2007, Miller moved to quash on the basis of attorney-client privilege and asked
the court to enter a protective order precluding further deposition and discovery
requests.
The trial court considered Safeco's request to depose Brindley under the
21 Brief of Appellant Safeco at 1-2.
30
No. 68594-5-1/31
three-part test outlined in Shelton v. American Motors Corporation. 805 F.2d
1323, 1327 (8th Cir. 1986):
We recognize that circumstances may arise in which the court
should order the taking of opposing counsel's deposition. But those
circumstances should be limited to where the party seeking to take
the deposition has shown that (1) no other means exist to obtain
the information than to depose opposing counsel, see, e.g..
Fireman's Fund Insurance Co. v. Superior Court. 140 Cal. Rptr. 677,
679, 72 Cal. App. 3d 786 (1977); (2) the information sought is
relevant and nonprivileged; and (3) the information is crucial to the
preparation of the case.
Focusing on prong two, the trial court responded initially that even if Brindley's
strategy in the Miller v. Kenny action was relevant to the bad faith action against
Safeco, Safeco had not shown the information it was seeking was unprivileged.
Safeco then argued that if Brindley could not be deposed, the court should not
permit Miller to call him as a witness at trial.
The trial court granted Miller's motion to quash in March 2008. Later, the
court ruled that Miller would not be able to call Brindley as a witness at trial
without giving at least 60 days' notice, and if that occurred, Safeco would be
permitted to renew its request for a deposition.
As the trial was about to begin in November 2011, Miller added Brindley to
his witness list. Safeco objected, and the court granted Safeco's motion to
exclude Brindley. Brindley did not testify.
Safeco contends the order granting Miller's motion to quash was
prejudicial error warranting a new trial. A discovery order is reviewed for abuse
of discretion. T.S. v. Bov Scouts of Am.. 157 Wash. 2d 416, 423, 138P.3d 1053
(2006).
31
No. 68594-5-1/32
Under authorities cited by Safeco, information possessed by plaintiff's
counsel in the underlying case may well be relevant in a bad faith case, and a
deposition may be the most efficient way to obtain the information. If so, a
blanket assertion of attorney-client privilege is not a sufficient basis to resist a
notice of deposition. See, e.g., Meritplan Ins. Co. v. Superior Court. 124 Cal.
App. 3d 237, 177 Cal. Rptr. 236, 237 (1981). However, Meritplan and similar
cases have not established a per se rule that a deposition of plaintiff's counsel in
the underlying case must always be allowed in a bad faith case.
The trial court in this case did not accept a blanket assertion of attorney-
client privilege. Relying on Shelton. the court required Safeco to demonstrate
that the specific information sought by Safeco was nonprivileged. Although
Shelton has not been formally adopted in Washington, it is a leading case, and it
is not inconsistent with Meritplan. The trial court did not abuse its discretion by
looking to Shelton for guidance.
Applying the Shelton test, the trial court concluded that Safeco had failed
to establish that the information it would be seeking from Brindley was
nonprivileged. The record supports this conclusion. What Meritplan refers to as
relevant information that may be most efficiently obtained through deposition is
"the circumstances and content of the various negotiations and communications
between the involved individuals." Meritplan. 124 Cal. App. 3d at 241. This is
not the type of information Safeco wanted from Brindley. Safeco wanted to ask
Brindley about matters that are covered by the attorney-client privilege and the
work product privilege, including Brindley's strategy in refusing mediation and
32
No. 68594-5-1/33
why he demanded the entire policy limits for Miller. For example, counsel for
Safeco told the trial court, "I want to know whether he was posturing in making a
settlement demand or not."22
And Safeco does not persuasively show that being deprived of the
opportunity to depose Brindley was prejudicial. Safeco did take the depositions
of John Barlow and Monte Wolff, the attorneys who, respectively, represented
Bethards and Peterson during the time period leading up to the settlement
agreement. Safeco did not use their depositions at trial. Presumably, this was
because their testimony, while mildly critical of Brindley's aggressiveness, was
more pointedly critical of Safeco for waiting so long to tender policy limits. The
same type of testimony coming from Brindley would not have been helpful to
Safeco.
Safeco's rhetorical complaint that the bad faith litigation was a setup
engineered by Brindley was not successful with the jury, and as a legal argument
it is equally unsuccessful. Pressing for a policy limits settlement for a badly
injured client is a professional responsibility, not a sinister plot. Keeping bad faith
litigation in mind as plan B ifthe insurer balks is a fair practice. Safeco could
have protected itself by putting the limits on the table for all three passengers.
Safeco refers to the covenant judgment of $4.15 million as "inflated." But
Safeco itself stipulated to that amount as a reasonable measure of the damages
incurred by Kenny's three passengers over and above the $1.8 million in policy
22 Report of Proceedings (July 20, 2007) at 6.
33
No. 68594-5-1/34
proceeds already tendered. The legal requirement of a reasonableness hearing
is there to protect insurers from inflated covenant judgments resulting from
collusion and fraud. See, e.g.. Water's Edge Homeowners Ass'n v. Water's
Edge Assocs.. 152 Wash. App. 572, 216 P.3d 1110 (2009). review denied. 168
Wash. 2d 1019 (2010). There was no evidence of collusion or fraud around the
settlement in this case. The claimants had serious injuries and were not at fault.
Safeco, after resisting early demands for settlement on the basis that the three
claims together did not approach the policy limits of $1.5 million, eventually
stipulated that the total injuries exceeded policy limits by $4.15 million. It is hard
to see how deposing Brindley could have helped Safeco put its delay in
disclosing and offering policy limits into a more favorable light.
Under these circumstances, the trial court did not abuse its discretion by
putting Brindley's deposition off limits unless Miller waived the privilege by calling
Brindley as a witness at trial.
We conclude the order quashing the subpoena for Ralph Brindley did not
constitute prejudicial error justifying a new trial.
EVIDENCE OF LOSS RESERVES
Soon after the accident, Safeco was aware that Kenny, its insured, was
most likely 100 percent at fault for his passengers' serious injuries. Safeco set its
reserve for liability at $1.5 million, a figure that included the umbrella policy limits
as well as the liability limits in the regular policy. The UIM reserve was $100,000.
As part of its ongoing responsibility to stay informed about Kenny's exposure,
Safeco reviewed its reserves approximately 20 times over the next 30 months.
34
No. 68594-5-1/35
Each time, Safeco concluded that Kenny was exposed to liability substantially in
excess of policy limits.
Safeco moved in limine to exclude this evidence as irrelevant or more
prejudicial than probative. The trial court denied the motion. Safeco assigns
errorto this evidentiary ruling. We review for abuse of discretion. Goehle v. Fred
Hutchinson Cancer Research Ctr.. 100 Wash. App. 609, 617, 1 P.3d 579, review
denied. 142Wn.2d 1010(2000).
Reserves are estimates of the amount insurers will need in the future for
unpaid claims and adjustment expenses. Reserves are used in determining an
insurer's financial condition. RCW 48.12.030(2), .090. Because a reserve is an
estimate that includes attorney fees and other adjustment expenses, it cannot be
equated with settlement authority. Accordingly, in a personal injury suit,
evidence of reserves may not be admitted as an acknowledgement of liability,
and reserves are generally viewed as irrelevant to show how much an injury is
worth. Silvav. Basin W.. Inc., 47 P.3d 1184, 1191 (Colo. 2002).
However, reserves may be relevant and admissible in a case where the
issue is whether the insurance company fulfilled its duty to adjust the insured's
claim in good faith. See Silva. 47 P.3d at 1191-92. Here, for many months,
Safeco refused to make the full amount of policy limits available to settle a case
in which, as shown by the reserves, it had known almost from day one that its
insured was exposed to much greater liability. The evidence was relevant and
not unduly prejudicial. Safeco was free to explain through an expert witness or
employee "the reason the reserve was established, the reasonableness of the
35
No. 68594-5-1/36
amount of the reserve, the allocation between indemnity and loss adjustment
expenses and any other evidence relevant to the issue from the insurer's
standpoint." Lipton v. Superior Court. 48 Cal. App. 4th 1599, 1615 n.17, 56 Cal.
Rptr. 2d 341 (1996).
As a general policy, it is preferable that loss reserves not be admitted into
evidence, because when an insurer sets loss reserves it should be solely
concerned with the purpose of ensuring the company's financial stability and
should not be tempted to "manipulate its reserves" to be consistent with the
insurer's settlement position. Stephen S. Ashley, Bad Faith Actions: Liability
and Damages § 10:31 (1997). In this case, however, the discrepancy between
Safeco's loss reserves and its settlement posture was enduring and sizable. We
conclude the relevance was high enough to overcome the policy concern. The
decision to admit the evidence was within the trial court's discretion.
DEPOSITION OF MARYLE TRACY
Safeco contends the trial court committed reversible error by allowing the
jury to view the videotaped deposition of Maryle Tracy, a Safeco claims analyst.
Tracy was briefly involved in the case during the time Kenny was considering
assigning his rights and stipulating to judgment. In the deposition, Tracy was
questioned by Miller about incentive programs for Safeco's employees that linked
bonuses to cost control. Tracy's answers were evasive, and the trial judge later
remarked that Tracy "was not a good witness for Safeco."23
Miller confronted Tracy with interrogatory answers she had provided on
23 Report of Proceedings (Apr. 16, 2012) at 42.
36
No. 68594-5-1/37
behalf of Safeco in 2004 in a case in South Dakota. Tracy had initially denied
that Safeco had programs rewarding its employees for keeping costs down, but
she later amended her answers to admit that such programs did exist.24
Safeco contends the deposition should have been excluded because it
was irrelevant, unduly prejudicial, and involved impeachment on a collateral
matter.
Safeco's bonus and incentive programs were admissible to show that
Safeco, at relevant times, was rewarding its adjusters financially for clamping
down on coverage and defense costs. The existence of these programs and the
action by a claims analyst to conceal them supplied evidence of Safeco's motive
to avoid settling for policy limits. The deposition thus was relevant to the bad
faith claim and not unduly prejudicial.
Safeco did not object below on the basis that evidence of Tracy amending
her answers in the South Dakota case was impeachment on a collateral matter.
That objection is not preserved, and we decline to address it.
We find no abuse of discretion in the decision to admit Tracy's deposition.
ATTORNEY MISCONDUCT
Leading Questions
David Beninger, Brindley's partner, represented Miller at trial. Beninger
repeatedly asked leading questions of his own witnesses, drawing numerous
objections. Safeco contends the questions were often testimonial in nature and
24 Report of Proceedings (Dec. 8, 2012) at 153-82.
37
No. 68594-5-1/38
that the cumulative effect tainted the trial irreparably.
A new trial may be granted based on prejudicial misconduct of counsel if
the moving party establishes that the conduct complained of constitutes
misconduct, as distinct from mere aggressive advocacy, and that the misconduct
is prejudicial in the context of the entire record. Aluminum Co. of Am. v. Aetna
Cas.& Surety Co.. 140 Wash. 2d 517, 539, 998 P.2d 856 (2000).
One type of misconduct that may justify a new trial is unfairly and
improperly exposing the jury to inadmissible evidence. Teter v. Deck, 174 Wash. 2d
207, 223-25, 274 P.3d 336 (2012). "While the asking of leading questions is not
prejudicial error in most instances, the persistent pursuit of such a course of
action is a factor to be added in the balance." State v. Torres. 16 Wash. App. 254,
258, 554P.2d 1069(1976).
In denying Safeco's motion for a new trial, the trial court commented,
"there's no doubt Mr. Beninger is the king of leading questions."25 The court
observed, however, that there had been an unusually large number of objections
from both sides, that almost all of Safeco's objections to leading questions were
sustained, and that Safeco had made no request for a curative instruction. "So I
did not believe the number and nature of those questions were so obnoxious and
tainted the jury to a degree that a new trial would be warranted."26
The trial court is in the best position to most effectively determine if
counsel's misconduct prejudiced a party's right to a fair trial. Teter, 174 Wash. 2d at
25 Report of Proceedings (Apr. 16, 2012) at 44.
26 Report of Proceedings (Apr. 16, 2012) at 44.
38
No. 68594-5-1/39
223. The particular instances of improper questioning cited by Safeco are not so
prejudicial in the context of the record as a whole as to compel us to disagree
with the trial court's assessment.
Closing Argument
Safeco contends Beninger's closing argument resulted in a verdict that
was the product of passion and prejudice, and that the trial court should have
granted a new trial on this basis.
Safeco moved in limine to preclude counsel from making a "golden rule"
argument or a "send-a-message" argument. A golden rule argument urges jurors
to imagine themselves in the position of a party and to grant that party the relief
they would wish to have for themselves. A golden rule argument is improper.
Adkins v. Aluminum Co. of Am., 110 Wash. 2d 128, 139, 750 P.2d 1257, 756 P.2d
142 (1988). At the hearing on Safeco's motion, Beninger agreed to refrain from
making a golden rule argument, but he argued that in a bad faith case, "the
whole purpose being deterrence," it would be inappropriate to ban a "send-a-
message" argument.27 The trial court granted Safeco's motion in limine only as it
pertained to golden rule arguments.
Beninger began closing argument by explaining that a trial takes place in
the locale where key events happened because the local jury reflects the
"conscience of the community" and serves as a protector and guardian for the
community.28 This speech was not a golden rule argument. Appeals for a jury to
27 Report of Proceedings (Nov. 22, 2011) at 86.
28 Report of Proceedings (Dec. 15, 2011) at 63.
39
No. 68594-5-1/40
act as a conscience of the community are not impermissible, unless specifically
designed to inflame the jury. State v. Finch. 137 Wash. 2d 792, 842, 975 P.2d 967,
cert, denied. 528 U.S. 922 (1999). Miller's argument was not inflammatory, and it
was not an appeal to parochial pride or prejudice. Cf. Pederson v. Dumouchel.
72 Wash. 2d 73, 83, 431 P.2d 973 (1967) (defense counsel, who lost no opportunity
to point out that plaintiff and his lawyers and witnesses did not live in Aberdeen,
"attempted to turn the jury into a hometown rooting section.")
Beninger asked the jury to consider whether Safeco's conduct reflected
"how we, as a community, want to be treated":
did they do things the right way to reflect how we, as a community,
want to be treated? And if so, side with Safeco. Side with Safeco.
And then hope you don't have an accident with someone from
Safeco. Or the other insurance companies, who will all be seeing
this, as we've heard, from the experts, they will all be publicizing
this, and they will all be a race to the bottom then. But that's your
decision. That's your values. That's what you get to decide, how
we all are going to be treated equally, what that means.[29]
Although Safeco did not object to this speech or any other portion of
plaintiff's closing argument, Safeco contends that the motion in limine preserved
error.
The court's ruling on the motion in limine precluded golden rule arguments
but not send-a-message arguments. The argument about "how we, as a
community, want to be treated" is close to the line separating the two. Under
these circumstances, the ruling in limine did not excuse Safeco from making a
more contemporaneous objection. The vice of a golden rule argument is that it
29 Report of Proceedings (Dec. 15, 2011) at 72.
40
No. 68594-5-1/41
encourages the jury to "'depart from neutrality and to decide the case on the
basis of personal interest and bias rather than on the evidence.'" Adkins. 110
Wash. 2d at 139 (emphasis added), quoting Roias v. Richardson, 703 F.2d 186, 191
(5th Cir. 1983). Beninger did not appeal to juror self-interest; rather, he appealed
to the jurors' interest as members of the public to "protect the public interest" and
to enforce the public "compact" that insurance companies have under the law to
complywith their duties of reasonable care, good faith, and fair dealing.30 This is
not improper argument in a bad faith case.
The effect of a golden rule argument on a jury is "difficult to ascertain,"
and in most cases, any prejudicial effect can be removed, if there is a timely
objection, by the trial court instructing the jury to disregard the argument. Adkins.
110 Wash. 2d at 142. Safeco did not make a timely objection. And the challenged
remarks when read in the overall context of the trial are more properly
characterized as aggressive advocacy than as misconduct. We therefore
conclude the argument of counsel did not furnish a basis for ordering a new trial.
INTEREST
Prejudgment Interest
On March 8, 2012, the trial court entered an order awarding Miller
prejudgment interest of $7.115 million. This figure was determined by taking the
settlement of $4.15 million reached by Kenny and the three claimants in May
2003 and compounding it annually at 12 percent. The rate of 12 percent was
specified in the settlement agreement:
30 Report of Proceedings (Dec. 15, 2011) at 83.
41
No. 68594-5-1/42
Interest: The parties acknowledge that a delay in the determination
or entry of judgments may be of benefit to Mr. Kenny, but
detrimental to the Plaintiffs. Therefore, the parties agree that 12%
statutory rate of interest shall accrue and compound annually on
the unpaid damages from the date of this agreement.
Safeco assigns error to the order awarding prejudgment interest, but
Safeco's brief does not explain how it was erroneous. Below, Safeco argued that
prejudgment interest was already encompassed by instruction 30, which allowed
the jury to award, as damages, "Lost or diminished assets or property, including
value of money." Safeco also argued below that if the court did award
prejudgment interest, it should not begin to run until the date of the
reasonableness stipulation in 2005. Safeco does not present these arguments
on appeal. The failure of an appellant to provide argument and citation of
authority in support of an assignment of error precludes appellate consideration
of an alleged error. RAP 10.3; Avellaneda v. State. 167 Wash. App. 474, 482 n.5,
273 P.3d 477 (2012). Therefore, the award of $7,115 million in prejudgment
interest will not be disturbed.
Postiudgment Interest
On June 14, 2012, the trial court entered an order awarding postjudgment
interest at the rate of 12 percent. The trial court accepted Miller's argument that
the 12 percent rate of contract interest specified in the May 2003 agreement was
the applicable rate not only for prejudgment interest but also for the final
judgment. This was error because the final judgment against Safeco was
founded on tortious conduct. See RCW 4.56.110(3)(b).
42
No. 68594-5-1/43
Miller relies on the principle that interest on a judgment will run at a
specified interest rate for which the parties have contracted, even where the
contract is a settlement agreement that settles a tort suit. "Once parties have
agreed to settle a tort claim, the foundation for the judgment is their written
contract, not the underlying allegations of tortious conduct." Jackson v. Fenix
Underground. Inc.. 142 Wash. App. 141, 146, 173 P.3d 977 (2007), applying RCW
4.56.110(1).
In Jackson, the judgment at issue was a covenant judgment entered in the
underlying action between the claimants and the insured defendant after a
reasonableness hearing in which the insurer participated. Our statement in
Jackson quoted above "referred to the allegations of tort liability that were
resolved by the settlement in the underlying suit." Unigard Ins. Co. v. Mut. of
Enumclaw Ins. Co.. 160 Wash. App. 912, 926, 250 P.3d 121 (2011). In Jackson,
there was no secondary bad faith action against the insurer. Here, the judgment
accumulating interest is not the claimants' settlement with Kenny in May 2003. It
is the judgment on the verdict of $13 million in the secondary bad faith action
against Safeco entered on March 8, 2012. Irrespective of the 2003 agreement
by which the passengers in the Passat settled their personal injury claims against
Kenny, Miller's judgment against Safeco exists only because Miller prevailed
against Safeco on the assigned bad faith claims. There was no settlement
agreement between Miller and Safeco. See Unigard. 160 Wash. App. at 926.
As a further basis for arguing that contract interest was properly awarded
on the judgment against Safeco, Miller points out that the jury found that Safeco
43
No. 68594-5-1/44
breached its obligations under the insurance contract. The insurance contract
has no bearing on the question as it does not specify a rate of interest.
The primary foundation for Miller's judgment against Safeco was Safeco's
tortious bad faith conduct. See Unigard. 160 Wash. App. at 927-28; Woo v.
Fireman's Fund Ins. Co.. 150 Wash. App. 158, 165, 208 P.3d 557. review denied.
167 Wash. 2d 1008 (2009). The trial court should have set postjudgment interest at
the tort judgment rate of RCW 4.56.110(3)(b). The judgment must be remanded
to make that correction.
ATTORNEY FEES
On March 8, 2012, the court also entered a judgment awarding Miller
attorney fees and costs. The basis for the award was the Consumer Protection
Act, RCW 19.86.090.
The court accepted Miller's lodestar calculation of attorney fees of
$1,071,470, based on a total of 3,229.8 hours. The hourly rate the court
accepted as reasonable was $400 to $450 for attorney David Beninger, $325 for
attorneys Deborah Martin and Patricia Anderson, $300 to $450 for appellate
counsel Howard Goodfriend, and $75 to $125 for paralegal services by three
individuals. The court granted a multiplier of 1.5 for a total attorney fee award of
$1,563,803.75. This was the precise amount requested by Miller. Safeco
contends the amount is unreasonable and the trial court failed to give Miller's fee
request appropriate scrutiny.
This court reviews a trial court's award of attorney fees for an abuse of
discretion. Mahler v. Szucs. 135 Wash. 2d 398, 435, 957 P.2d 632, 966 P.2d 305
44
No. 68594-5-1/45
(1998). To reverse an attorney fee award, we must find the trial court exercised
its discretion on untenable grounds or for untenable reasons. Chuong Van Pham
v. City of Seattle. 159 Wash. 2d 527, 538, 151 P.3d 976 (2007).
A determination of reasonable attorney fees begins with a calculation of
the "lodestar," which is the number of hours reasonably expended on the
litigation multiplied by a reasonable hourly rate. Mahler. 135 Wash. 2d at 433-34.
Safeco challenges the determination of the reasonable hourly rates. The
fee customarily charged in the locality for similar legal services is one of the
factors to be used in determining the proper rate. Mahler, 135 Wash. 2d at 433
n.20. Safeco contends the trial court failed to give appropriate consideration to
evidence that the hourly rates claimed by counsel for Miller were higher than
those customarily charged by attorneys in Skagit County.
The trial court found that the difficulty of the case made it appropriate for
Miller to be represented by counsel with a high level of specialization:
It is not appropriate to restrict the hourly rate to the locality of Skagit
Valley, as this Court enjoys and benefits from a rich exchange of
lawyers from the entire Puget Sound region, and while certain
events or cases may be handled largely within a market of this
county, this kind of suit and litigation is not so geographically limited
but instead requires a much broader degree of talent and
specialization. This case required a high level of skill in the
specialized area of insurance bad faith, assignments, contract and
CPA, as well as a high level of skill in trial preparation and
presentation. Few law firms in the Puget Sound region are
equipped to take these kinds of cases on behalf of a client.[31]
Local rates are just one factor in determining the reasonableness of fees
and not always a dispositive factor. Crest Inc. v. Costco Wholesale Corp.. 128
31 Finding of Fact/Conclusion of Law 11, Clerk's Papers at 5712.
45
No. 68594-5-1/46
Wn. App. 760, 774, 115 P.3d 349 (2005). The trial court's rationale for approving
hourly rates higher than those customarily charged in Skagit County was
grounded in the difficulty and novelty of the issues and the specialized skills
required, factors mentioned in RPC 1.5(a). In addition, as noted by the trial
court, the fees and costs claimed by the opposing party challenging the request
are also appropriate to consider for comparative purposes. See Absher Const.
Co.v. Kent Sen. Dist. No. 415. 79 Wash. App. 841, 847, 917 P.2d 1086 (1995).
"The Court here was not informed of Safeco's attorney fee bill."32
We find no abuse of discretion in the determination of reasonable hourly
rates.
Safeco contends that the court's determination of the number of hours
reasonably expended cannot stand because it is not based on contemporaneous
billing records. Beninger arrived at 3,229.8 hours by going through the
correspondence file and the extensive trial docket after the trial was over and
estimating the time related to each item for each timekeeper.
To assist the court in determining the hours reasonably expended,
attorneys "must provide reasonable documentation of the work performed. This
documentation need not be exhaustive or in minute detail, but must inform the
court, in addition to the number of hours worked, of the type of work performed
and the category of attorney who performed the work (i.e., senior partner,
associate, etc.)." Bowers v. Transamerica Title Ins. Co.. 100 Wash. 2d 581, 597,
675 P.2d 193 (1983). In Mahler, the court stated that counsel "must provide
32 Clerk's Papers at 5721.
46
No. 68594-5-1/47
contemporaneous records documenting the hours worked." Mahler. 135 Wash. 2d
at 434. Safeco contends the lack of contemporaneous time or billing records
means that Miller's fee request should have been denied altogether or at least
reduced by a sizable percentage.
As stated by one of the cases Safeco cites, the "better practice is to
prepare detailed summaries based on contemporaneous time records." Nat'I
Ass'n of Concerned Veterans v. Sec'v of Def., 675 F.2d 1319, 1327 (D.C. Cir.
1982). But there is no per se rule, even in the federal courts, that permitting an
attorney to rely upon reconstructed time records is an abuse of discretion. Carter
v.Sedgwick County. Kan.. 929 F.2d 1501, 1506 (10th Cir. 1991).
The same judge presided over almost every pretrial event as well as the
trial and posttrial proceedings. Characterizing the presentation of attorney time
as "conservative," the court found that the plaintiff "omitted billing time spent on
certain routine, reasonable and necessary matters such as phone calls,
interoffice communications, developing theories and strategies, and more, and
has taken reasonable steps to avoid and reduce claims for fees that might
involve duplicative, non-productive or wasteful matters."33 Our review of the
record confirms that the time claimed for particular events during the litigation
was not inflated. We conclude the reconstruction of hours from the court docket
and the correspondence file was an adequate basis for the determination.
The total hours an attorney has recorded for work in a case is to be
discounted for hours spent on "unsuccessful claims, duplicated effort, or
33 Clerk's Papers at 5682.
47
No. 68594-5-1/48
otherwise unproductive time." Bowers, 100 Wash. 2d at 597. A trial court does not
need to deduct hours here and there just to prove to the appellate court that it
has taken an active role in assessing the reasonableness of a fee request.
Berrvman v. Metcalf. 177 Wash. App. 644, 312 P.3d 745 (2013). review denied.
Wn.2d (2014). But the court's findings must show how the court
resolved disputed issues of fact and the conclusions must explain the court's
analysis. Berrvman. 312 P.2d at .
Safeco contends the trial court should have segregated the time
associated with the consumer protection claim, on which fees were recoverable,
from the tort claims for bad faith and negligence, on which fees were not
recoverable. Safeco did not make this argument in its trial brief opposing the
request for an attorney fee award. The order awarding attorney fees found that
Miller's several causes of action were interrelated. They all "involved a common
core of facts and circumstances, in which the time devoted to discovery, pretrial
motions and preparation and trial of this intertwined action cannot be reasonably
segregated (which is one reason this Court previously denied Safeco's motion to
bifurcate the causes of action)."34 The trial record supports the court's
characterization of the interrelatedness of the causes of action. Especially
because Safeco made no proposal as to how the time could have been
segregated, we cannot find that the trial court was obliged to make a
segregation.
34 Clerk's Papers at 5712.
48
No. 68594-5-1/49
As a discovery sanction ordered by the trial court on February 15, 2008,
Safeco paid Miller's attorney fees of $43,487.37 incurred in connection with the
uninsured motorist coverage issue.35 Because Miller's request for attorney fees
at the end of the case included 45 hours for work related to UIM coverage,
Safeco contends the same work was billed twice. In response to this contention
below, Beninger provided a supplemental declaration in which he explained that
the payment received from Safeco in 2008 was only for fees incurred in
establishing, by order of partial summary judgment, that the policy provided UIM
coverage of $500,000. Whether Safeco committed bad faith when it represented
that the policy limits were $100,000 was an issue left for trial. Safeco does not
rebut Miller's explanation that these were two separate issues, and we therefore
conclude the claim of double billing is unfounded.
Safeco contends the court erred by awarding fees for counsel's
unsuccessful efforts. Safeco specifically refers to time spent on a motion
concerning legal duties that did not result in a jury instruction, researching a
cause of action that was never brought, advocating motions in limine that the
court denied, and opposing Safeco's motions in limine that the court granted.
Safeco contends the time spent on these efforts should have been excluded
under Chuong Van Pham. 159 Wash. 2d at 539-40. In Chuong Van Pham. the
Supreme Court affirmed the trial court's decision to reduce the lodestar for time
spent on unsuccessful claims. The case holds that appellate courts will ordinarily
defer to the trial court's discretion, especially in complex cases. "The issue
35 Clerk's Papers at 5461-62.
49
No. 68594-5-1/50
before us is not whether we would have awarded a different amount, but whether
the trial court abused its discretion." Chuong Van Pham. 159 Wash. 2d at 540.
Here, unlike in Chuong Van Pham, the trial court made no finding that the efforts
of counsel identified by Safeco were unnecessarily expended, unproductive, or
insufficiently related to the overall success of the litigation.
The trial judge is in the best position to determine the proper lodestar
amount. Fiore v. PPG Indus.. Inc.. 169 Wash. App. 325, 351, 279 P.3d 972;
Morgan v. Kingen. 141 Wash. App. 143, 163, 169 P.3d 487 (2007). review denied.
175Wn.2d 1027(2012). The trial judge in this case was mindful of his duty
under Bowers and Mahler to consider the fee request thoughtfully, and he was
well versed in the legal standards applicable to fee requests. We find no abuse
of discretion in the calculation of the lodestar amount.
Finally, Safeco challenges the multiplier of 1.5.
Adjustments to the lodestar product are reserved for "rare" occasions.
Sanders v. State. 169 Wash. 2d 827, 869, 240 P.3d 120 (2010). The lodestar fee is
presumed to adequately compensate an attorney. Fiore. 169 Wash. App. at 355;
Chuong Van Pham, 159 Wash. 2d at 542. Typically, the quality of work performed
will not justify an enhancement because "in virtually every case the quality of the
work will be reflected in the reasonable hourly rate." Bowers, 100 Wash. 2d at 599.
Safeco contends that the risk assumed by Miller's attorneys was already
accounted for by the hourly rates approved as part of the lodestar.
The trial court aptly summarized the risk assumed by Miller's attorneys:
50
No. 68594-5-1/51
This Court is intimately familiar with the details and duration of this
marathon case. This case has been ongoing since 2002 and is one
of the most complex and difficult civil cases ever undertaken in
Skagit County. The case took nearly eight years of litigation, a 14
day bifurcated jury trial, two previous trips to the Court of Appeals,
70,000 pages of documents, 95 motions, a $25,000 discovery
sanction imposed, and 669 entries in the trial court docket. This
case was toughJ361
Since Bowers, a recurring question "has been whether the business risk
inherent in taking a contingent fee case justifies enhancing the lodestar."
Berrvman. 312 P.3d at 758. Here, it did. The trial court appropriately decided
that this is one of the rare cases in which risk justified a multiplier. The risk was
all or nothing. Eight years was an unusually long time to go without payment,
especially considering the amount of work the litigation required throughout those
eight years. Furthermore, private prosecution of Consumer Protection Act
violations is backed by public policy. Protecting consumers against the bad faith
of insurance companies fulfills the purpose of the statute that authorizes the fee
award. The litigation vindicated the right of every consumer who pays for liability
insurance—often a very significant portion of the household budget—to be
protected from a financial catastrophe. When litigation under the Consumer
Protection Act "produces protection for everyone who might in the future be
injured by a specific violation, then it follows that the reasonableness of the
attorney's fee should be governed by substantially more than the import of the
case to the plaintiff alone." Berrvman. 312 P.3d at 762, citing Connelly v. Puget
Sound Collections. Inc.. 16 Wash. App. 62, 65, 553 P.2d 1354 (1976).
36 Clerk's Papers at 5720.
51
No. 68594-5-1/52
The trial court took the quality of the representation into consideration but
ultimately the decision to award a multiplier was based on the significance of the
risk: "A lodestar multiplier of 1.5 is appropriate given the contingent
representation and risks this matter presented at the inception and throughout
the 8 years of non-payment, and the exceptional quality of representation
provided to the plaintiff by his counsel. Although the verdict was substantial, at
the time of accepting the case it was of a significant risk and given the quality of
the representation an upward adjustment is appropriate."37
We find no abuse of discretion in the use of the multiplier to enhance the
fee award.
COSTS
The trial court granted every litigation expense Miller claimed, for a total
award of $138,433.94 in costs. Safeco contends Miller was not entitled to
recover expenses beyond statutory costs identified in RCW 4.84.010. We agree.
Relatively minimal statutory costs are provided for in RCW 4.84.010 (e.g.,
filing and service fees, witness fees, and expenses of obtaining records that are
admitted into evidence). The trial court concluded that in a bad faith case, an
award of costs is not limited by RCW 4.84.010 but rather may be expanded to
include such items as out-of-pocket expenses for transportation, lodging, and
services. The court found the costs it awarded were "reasonable and necessarily
37 Clerk's Papers at 5713 (Findings of Fact and Conclusions of Law).
52
No. 68594-5-1/53
incurred for the successful resolution of the bad faith, contract and other
intertwined causes of action."38
The Consumer Protection Act does not authorize an award of costs
beyond those permitted by RCW 4.84.010. Nordstrom. Inc. v. Tampourlos. 107
Wash. 2d 735, 743, 733 P.3d 208 (1987). In arguing a bad faith verdict justifies
expanded costs, Miller relies on Panorama Village Condominium Owners
Association Board of Directors v. Allstate Insurance Company. 144Wn.2d 130,
144, 26 P.3d 910 (2001). But in that case, the court allowed broad recovery of
costs only because the plaintiff had successfully contested a coverage issue, and
the court found authority for expanded costs in Olympic Steamship Company v.
Centennial Insurance Company, 117Wn.2d37, 811 P.2d 673 (1991).
Panorama Village. 144 Wash. 2d at 133 (identifying issue as "When a plaintiff is
entitled to an award of reasonable attorney fees pursuant to Olympic
Steamship, are costs limited to those expenses enumerated in the cost recovery
statute?" (footnote omitted)). The only part of Miller's case that involved Olympic
Steamship was the dispute about whether Peterson's UIM coverage was
$500,000 or $100,000. That issue was resolved early, and Miller has not shown
that the expenses included in the challenged cost award were attributable to the
resolution of that coverage dispute.
Miller also cites Griffin v. Allstate Insurance Company. 108 Wash. App. 133,
148, 29 P.3d 777, 36 P.3d 552 (2001). review denied. 146 Wash. 2d 1005 (2002).
In that case, the plaintiffs were sued for damaging their neighbors' property.
38 Clerk's Papers at 5713 (Findings of Fact and Conclusions of Law).
53
No. 68594-5-1/54
When their insurer denied coverage, they had to pay their own defense costs and
an expert on claims handling. In their bad faith case, they claimed these costs as
damages resulting from breach of the duty to defend—not as attorney fees.
Griffin. 108 Wash. App. at 147. Miller had his opportunity to obtain costs as
damages pursuant to instruction 30, which identified the types of damages that
can be awarded for bad faith. Griffin does not authorize deviating from the
statutory definition for an award of costs included in an award of attorney fees.
Miller fails to show that any of the expenses included in the cost award of
$138,433.94 are within the definition of costs awardable under RCW 4.84.010.
Accordingly, we conclude it was error to make an award of costs.
ATTORNEY FEES ON APPEAL
We grant Miller's request for attorney fees on appeal under RCW
19.86.090 and, where applicable, under Olympic Steamship.
SAFECO'S MOTION TO STRIKE
Miller's reply brief argued that Safeco did not have "standing to challenge
the terms of the validity of the assignment between Kenny and Miler." Safeco
has moved to strike that argument. We deny the motion. The standing argument
is not new, and in any event, we have not had to address it.
CONCLUSION
The order denying a new trial is affirmed. The judgment on the verdict is
affirmed. The order awarding prejudgment interest is affirmed. The order
awarding postjudgment interest is reversed and remanded for redetermination
using the statutory rate of interest for judgments founded on tortious conduct.
54
No. 68594-5-1/55
The judgment for attorney fees is affirmed. The award of costs is reversed and
vacated. Miller is entitled to an award of reasonable attorney fees on appeal,
subject to compliance with RAP 18.1.
WE CONCUR:
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