Terry And Celeste Vanderstoep v. Gary And Kathleen Guthrie

Filed
Washington State
Court of Appeals
Division Two
September 19, 2017
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION II
TERRY A. VANDERSTOEP and CELESTE No. 49597-0-II
VANDERSTOEP, husband and wife,
Respondents,
and PUBLISHED OPINION
GARY GUTHRIE and KATHLEEN
GUTHRIE, as Guardians of HOWIE I.
GUTHRIE, a minor,
Appellants.
MAXA, A.C.J. – Gary and Kathleen Guthrie appeal the trial court’s denial of their motion
to set aside a default order and vacate a default judgment entered against them and in favor of
Terry and Celeste VanderStoep. The VanderStoeps’ lawsuit against the Guthries arose from an
automobile collision caused by the negligence of Howie Guthrie, the Guthries’ minor son, in
which Terry1 suffered serious injuries.
After the Guthries were served with the lawsuit, they notified their insurer, American
Family Insurance Company, and followed up with two telephone messages. American Family’s
adjuster handling the matter claimed that, for unexplained reasons, she never received notice of
the lawsuit. Nobody appeared for the Guthries, and the VanderStoeps obtained a default
1
When identified individually, we refer to Terry and Celeste VanderStoep and Kathleen and
Howie Guthrie by their first names to avoid confusion. We intend no disrespect.
No. 49597-0-II
judgment in the amount of $374,580.36 for Terry’s medical expenses, income loss and
noneconomic damages, Celeste’s loss of consortium, and costs.
The Guthries argue that the trial court erred in denying their motion to set aside the
default judgment under CR 60(b)(1) because (1) they presented evidence of a prima facie
defense to the VanderStoeps’ noneconomic damages claim and (2) their failure to timely appear
was the result of mistake, inadvertence, or excusable neglect because they properly notified
American Family and followed up on that notice, even if American Family did not have a
legitimate excuse for not responding to the complaint. We agree and hold that the portion of the
trial court’s default judgment relating to the VanderStoeps’ noneconomic damages should be set
aside.
Accordingly, we reverse the trial court’s denial of the Guthries’ motion to set aside the
noneconomic damages portion of the default judgment, and we remand for further proceedings.
FACTS
Accident and Injuries
In July 2014, Howie and Terry were involved in an automobile collision when Howie
turned across oncoming traffic without yielding and collided with Terry’s car. As a result of the
collision, Terry suffered serious injuries to his low back, right knee, and left shoulder in addition
to other injuries. A herniated disc in Terry’s low back caused right hip and right leg pain.
Terry was 67 years old at the time of the collision. He worked as a golf course
groundskeeper. He was off work for about a month after the accident, returned to work part time
for light duty for several months, and then was taken off work by his doctor in January 2015.
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No. 49597-0-II
In February, Terry underwent low back surgery for his herniated disc. The surgery
relieved most of his leg symptoms, but he claimed that he continued to suffer hip pain. He also
experienced various aches and pains that he attributed to the accident.
Terry returned to work in March, but he claimed that he no longer could perform the
physical tasks associated with his job. He was suffering more pain and was concerned that he
might be reinjured. Terry retired in November 2015.
Settlement Negotiations
Shortly after the accident occurred, the Guthries reported a claim to their insurer,
American Family. Kathleen understood that American Family would work directly with the
VanderStoeps or their attorney to settle the claim on the Guthries’ behalf. The Guthries had no
contact with the VanderStoeps or American Family for over a year.
American Family adjusters engaged in settlement negotiations with the VanderStoeps’
attorney, William Robison. American Family did not contest that Howie was liable and
conceded that Terry’s surgery was causally related to the accident.
On February 16, 2016, American Family adjuster Stacy Thrush had a telephone
conversation with Robison. Robison stated that the VanderStoeps’ final demand was $225,000,
and Thrush stated that American Family’s final offer was $145,060.44. According to Robison,
he told Thrush that she should alert the Guthries that they would soon be served with a summons
and complaint. According to Thrush, Robison said that he would obtain the VanderStoeps’
permission to file a lawsuit. Thrush called Kathleen and advised her that a lawsuit might be
filed.
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Service of Complaint
The VanderStoeps filed a lawsuit against the Guthries on February 18. Robison did not
inform Thrush that the VanderStoeps had filed suit or send her a copy of the complaint. The
Guthries were served with the summons and complaint on February 27. That same day,
Kathleen called American Family’s general claims number and spoke for 13 minutes with a
representative assigned to take such calls. Kathleen advised the representative that she had been
served with the summons and complaint, provided pertinent information regarding the lawsuit,
and answered questions posed to her.
When Kathleen did not receive further communications from American Family, she
called American Family’s general claims number, once on February 29 or March 1 and again on
March 7. On both occasions, she entered what she believed to be Thrush’s extension number
and left a voicemail stating she had been served with the summons and complaint. Kathleen
believed that these communications sufficiently informed American Family of the lawsuit, and
her understanding and expectation was that American Family would handle the Guthries’
representation.
Thrush stated that she did not receive any information or voicemails regarding the
summons and complaint. She also told Kathleen later that she had no record of Kathleen’s calls.
Default Judgment
The Guthries did not appear in the VanderStoeps’ lawsuit. On March 24, the
VanderStoeps filed a motion for default and a motion for a default judgment. The support for the
default judgment motion was a four-page declaration from Robison describing the accident and
summarizing Terry’s injuries, treatment, and employment situation. The declaration did not
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attach any medical records, medical bills, or income loss documentation. Robison simply stated
in a declaration that Terry’s total medical expenses were $61,836.44, claimed that Terry had lost
$12,000 in income, and stated that he believed a reasonable value for the case was $361,836.44.
He also stated that a reasonable sum for Celeste’s loss of consortium claim was $15,000.
On March 30, the trial court conducted a short hearing on the motion for a default
judgment. Both Terry and Celeste provided very brief testimony. Robison recommended
$300,000 for noneconomic damages. The court entered an order of default and a default
judgment along with findings of fact and conclusions of law. The judgment included $61,836.44
in medical expenses, $12,000 in income loss, and $300,000 in noneconomic damages.
On April 21, over two months after Robison told Thrush that he would file suit, Thrush
left a voicemail with Robison following up with the parties’ settlement negotiations. Robison
stated that he returned the call and received a voicemail recording, but he was not allowed to
leave a message. Thrush called again on June 7 and learned of the default judgment. Thrush
then called Kathleen, who said that she had notified American Family of the lawsuit.
Motion to Vacate Default Judgment
On June 8, American Family retained an attorney to represent the Guthries and the
attorney filed a notice of appearance on June 13. On July 6, the Guthries filed a motion under CR
60(b)(1) to set aside the default order and vacate the default judgment. They challenged only the
damages portion of the default judgment, not the liability portion.
To establish a prima facie defense to the VanderStoeps’ damages claim, the Guthries
submitted as evidence two progress notes from Terry’s doctor. A note dated February 12, 2015,
a week after the low back surgery, stated that Terry’s right leg pain had resolved and he was
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No. 49597-0-II
returning to daily activities without difficulty, but he would continue with pain medication as
needed and would wear a lumbosacral corset for the next six weeks. A note dated March 11, five
weeks after surgery, stated that Terry’s right leg pain still was resolved, he only had occasional
low back discomfort, he was off medication, and he was returning to his usual daily activities.
The doctor discussed lifting and activity restrictions, but told Terry that he could perform a light
exercise program and play golf.
However, the Guthries also informed the court that they did not have enough information
to fully challenge the damages award. Although Robison had supplied some medical records to
American Family, the Guthries did not have all the medical records and had no opportunity to
obtain a defense medical examination of Terry or take depositions of Terry and Celeste.
Regarding the reason they had not appeared in the action before the default judgment, the
Guthries claimed that there had been a miscommunication between them and American Family.
But American Family provided no explanation for why Kathleen’s notice that she had been
served had not caused American Family to retain defense counsel or why Kathleen’s messages
were not forwarded to Thrush.
The trial court denied the Guthries’ motion. It explained its ruling orally, stating that “the
disputing of the noneconomic damages by itself seems to be insufficient grounds for oversetting
[sic] the default.” Report of Proceedings (RP) (July 29, 2016) at 28. The court further explained
that there was evidence of a substantial injury and medical expenses, and that based on
substantial evidence and representations of counsel the damages award was appropriate.
The Guthries appeal the trial court’s order denying their motion to set aside the
default order and the default judgment.
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ANALYSIS
A. STANDARDS FOR SETTING ASIDE DEFAULT JUDGMENT
CR 55(c) provides that a trial court may set aside an entry of default and a default
judgment in accordance with CR 60(b). Under CR 60(b)(1), a party may obtain relief from a
default judgment based on “[m]istakes, inadvertence, surprise, excusable neglect or irregularity
in obtaining a judgment or order.”
1. Application of White Test
Whether a trial court should set aside a default judgment under CR 60(b)(1) depends
upon application of a four-part test first articulated in White v. Holm, 73 Wash. 2d 348, 352, 438
P.2d 581 (1968).
A party moving to vacate a default judgment must be prepared to show (1) that
there is substantial evidence supporting a prima facie defense; (2) that the failure to
timely appear and answer was due to mistake, inadvertence, surprise, or excusable
neglect; (3) that the defendant acted with due diligence after notice of the default
judgment; and (4) that the plaintiff will not suffer a substantial hardship if the
default judgment is vacated.
Little v. King, 160 Wash. 2d 696, 703-04, 161 P.3d 345 (2007). The first two factors are “primary”
and the second two are “secondary.” Id. at 704.
Here, the VanderStoeps concede that the Guthries can satisfy the two secondary factors.
And the Guthries concede that they do not have a defense to Howie’s negligence liability and
economic damages. The only issues are whether the Guthries presented substantial evidence
establishing a prima facie defense to the VanderStoeps’ noneconomic damages claim and
whether the Guthries’ failure to timely appear was excusable.
Several well-settled principles guide our review of a trial court’s decision on a motion to
set aside a default judgment. First, default judgments generally are disfavored because courts
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prefer to resolve cases on their merits. Id. at 703. However, courts also value a judicial system
where litigants comply with court rules. Id. We must balance these competing concerns. Id.
Second, “whether or not a default judgment should be set aside is a matter of equity.” Id.
at 704. Our primary concern is whether justice is being done. Id. at 703. In reviewing a trial
court’s decision on a motion to set aside a default judgment, we must assess whether that
decision is just and equitable. Rush v. Blackburn, 190 Wash. App. 945, 956-57, 361 P.3d 217
(2015).
Third, application of the four-part test is not mechanical. Little, 160 Wash. 2d at 704. What
is just and equitable must be determined based on the specific facts of each case, not based on a
fixed rule. Id. at 703.
2. Relationship Between Primary Factors
The strength of the defendant’s defense determines the significance of the defendant’s
reasons for failing to timely appear and defend. See Akhavuz v. Moody, 178 Wash. App. 526, 532-
33, 315 P.3d 572 (2013); White, 73 Wash. 2d at 352-53. When the defendant can demonstrate a
strong or virtually conclusive defense, a default judgment generally should be set aside
regardless of why the defendant failed to timely appear unless that failure was willful or the
secondary White factors are not satisfied. Akhavuz, 178 Wash. App. at 533. But when the
defendant establishes only a prima facie defense, the reasons for the failure to timely appear
become the crucial consideration, again in conjunction with the secondary factors. Id.
Here, the Guthries do not contend that they have shown a strong or virtually conclusive
defense to the VanderStoeps’ damages claim; they argue only that they have raised a prima facie
defense. Therefore, we must address both primary factors.
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3. Standard of Review
We review a trial court’s ruling on a motion to vacate a default judgment for abuse of
discretion. Rush, 190 Wash. App. at 956. A trial court abuses its discretion by making a decision
that is manifestly unreasonable or by basing its decision on untenable grounds or untenable
reasons. Id. A decision based on a misunderstanding of the law constitutes an abuse of
discretion. Little, 160 Wash. 2d at 703.
Significantly, we are more likely to find an abuse of discretion when the trial court denies
a motion to set aside a default judgment than when the trial court grants such a motion. Rush,
190 Wash. App. at 957.
B. PRIMA FACIE DEFENSE TO PERSONAL INJURY DAMAGES
The Guthries argue that they satisfied the first White factor because they submitted
substantial evidence to establish a prima facie defense to the VanderStoeps’ noneconomic
damages claim. We agree.
1. General Principles
To set aside a default judgment, a defendant generally must submit affidavits identifying
specific facts that support a prima facie defense. Shepard Ambulance, Inc. v. Helsell, Fetterman,
Martin, Todd & Hokanson, 95 Wash. App. 231, 239, 974 P.2d 1275 (1999). Allegations or
conclusory statements are insufficient. Id. Similarly, the defendant must do more than present
speculation regarding the existence of a defense. Little, 160 Wash. 2d at 704-05. The defendant
must present “concrete facts” that support a defense. Ha v. Signal Elec., Inc., 182 Wash. App. 436,
449, 332 P.3d 991 (2014).
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Regarding a personal injury damages claim, alleging merely that the damages awarded in
a default judgment “do[] not appear equitable or just” does not create a prima facie defense.
Rosander v. Nightrunners Transp., Ltd., 147 Wash. App. 392, 408, 196 P.3d 711 (2008) (quotation
marks and citation omitted); see also Calhoun v. Merritt, 46 Wash. App. 616, 620, 731 P.2d 1094
(1986) (stating that an allegation that the damages award was “questionable” is insufficient). In
addition, “[i]t is not a prima facie defense to damages that a defendant is surprised by the amount
or that the damages might have been less in a contested hearing.” Little, 160 Wash. 2d at 704. A
defaulting defendant bears the risk that the amount of the damages award might be surprising.
Shepard Ambulance, 95 Wash. App. at 240-41.
When evaluating the facts the defendant presents to support a prima facie case, the trial
court does not act as a trier of fact that weighs the evidence. Rosander, 147 Wash. App. at 405.
Instead, the trial court must view the evidence and reasonable inferences therefrom in the light
most favorable to the defendant. Ha, 182 Wash. App. at 449. “The trial court need only determine
whether the defendant is able to demonstrate any set of circumstances that would, if believed,
entitle the defendant to relief.” Id. And the defendant’s argument does not have to be
particularly strong or conclusive; in some circumstances, even a “ ‘tenuous’ ” defense may be
sufficient to support a motion to vacate. Little, 160 Wash. 2d at 711 (quoting White, 73 Wash. 2d at
353).
2. Disregarding Prima Facie Defense Requirement
A few cases have indicated that the trial court has discretion to disregard the prima facie
defense requirement when deciding to set aside the damages portion of a default judgment. In
Calhoun, Division Three of this court highlighted the difficulty a defendant in a personal injury
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action has in showing a prima facie defense to a general damages award without the opportunity
for discovery. 46 Wash. App. at 620-21. As the court noted, “development of a defense to the
damages would require the examination of [the plaintiff] by a defense expert.” Id. at 620. The
court also recognized that “presenting a defense to damages for pain and suffering is always
complicated by the subjective . . . nature of such damages.” Id.
Based on these considerations, the court set aside the default judgment without requiring
the defendant to show a prima facie damages defense. Id. at 620-21. The court concluded,
“Given these circumstances, it would be inequitable and unjust to deny the motion to vacate the
damage portion of the judgment on the ground that Mr. Merritt did not present a prima facie
defense.” Id.
Division One of this court acknowledged the holding in Calhoun in two subsequent
cases. In Shepard Ambulance, the court cited Calhoun in stating that “a trial court has discretion
to vacate the damages portion of a default judgment even where no meritorious defense is
established.” Shepard Ambulance, 95 Wash. App. at 241. In Farmers Insurance Co. of
Washington v. Waxman Industries, Inc., the court stated:
Once, in a personal injury case where the defendant did not specify facts that would
support vacation of a default judgment, we nevertheless held that the default
judgment should be set aside as to damages only (not liability) because no discovery
had taken place. [Calhoun, 46 Wash. App. at 620-21.] We accepted the defendant’s
argument about the difficulty of challenging the damages awarded for pain and
suffering without the opportunity for discovery, which would include a defense
medical examination.
132 Wash. App. 142, 147, 130 P.3d 874 (2006).
And the Supreme Court in Little stated, “Except in unusual circumstances, a party
who moves to set aside a judgment based upon damages must present evidence of a
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prima facie defense to those damages.” 160 Wash. 2d at 704 (emphasis added). In other
words, the court seemed to acknowledge that the trial court could exercise its discretion
in certain unusual situations to set aside the damages portion of a default judgment
without a showing of a prima facie defense. See id.
3. Sufficient Evidence of Prima Facie Damages Defense
Apart from discussing when a defendant is not required to present a prima facie defense,
three cases have addressed what evidence is sufficient to present a prima facie defense regarding
a noneconomic damages claim in a personal injury action.
In Showalter v. Wild Oats, the plaintiff alleged that she was injured after slipping and
falling in a grocery store. 124 Wash. App. 506, 508-09, 101 P.3d 867 (2004). The plaintiff’s
affidavit in support of her complaint stated that she had received chiropractic treatment for
injuries incurred in an automobile accident four years before her fall and that she had seen
another doctor for spinal injuries two years before her fall. Id. at 513. The court held that,
considering the evidence in the light most favorable to the defendant, the existence of similar
preexisting injuries “persuasively challenge[d] the amount of damages for past and future non-
economic loss.” Id.
In Gutz v. Johnson, two plaintiffs alleged that they suffered personal injuries in an
automobile accident. 128 Wash. App. 901, 905, 117 P.3d 390 (2005), aff’d sub nom. Morin v.
Burris, 160 Wash. 2d 745, 161 P.3d 956 (2007). The medical records of one plaintiff showed that
her treatment first occurred more than two years after the accident. Id. at 917. The evidence
showed that the other plaintiff had suffered from prior neck and back problems, that she had
received medical treatment for neck pain before the accident, and that the only consistent
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medical treatment she received immediately after the accident was massage therapy. Id. at 918.
The court noted that “the submitted medical documentation appears significantly inconsistent
with the general damages award.” Id. The court concluded that, considering the evidence in the
light most favorable to the defendants, the defendants presented substantial evidence of a prima
facie defense regarding the damages award. Id.
On the other hand, in Little the defendant argued that “preexisting conditions may have
contributed to Little’s injury.” 160 Wash. 2d at 704. The defendant’s only evidence to support this
argument was a declaration from an insurance adjuster stating that the plaintiff’s medical records
included reports of headaches, hip pain, and depression before the collisions. Id. The court
stated, “But the moving parties have simply not presented any evidence that would tend to show
that Little’s preaccident aches, pains, and depression were related in any way to her postaccident
condition. Even viewed in the light most favorable to the parties moving to set aside the default
judgment, mere speculation is not substantial evidence of a defense.” Id. at 704-05. Therefore,
the court held that the defendants had not shown substantial evidence of a prima facie defense.
Id. at 705.
4. Prima Facie Defense Analysis
Here, the Guthries did more than merely argue that the general damages award in the
default judgment was too high or unfair. They relied on affirmative evidence – two progress
notes made shortly after Terry’s surgery – to establish a prima facie defense. The first note
stated that “[Terry’s] right leg radicular complaints have resolved,” that “[h]e has incisional low
back discomfort, as expected, but he is returning to his usual daily activities without difficulty,”
and that he was taking medication for pain relief and using a supportive corset. Clerk’s Papers
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(CP) at 83. The second note repeated that Terry’s leg pain had resolved and added that “[h]e has
only occasional low back discomfort but is much better than prior to surgery,” that “[h]e is
returning to his usual daily activities without difficulty,” that he continued to use the corset when
upright, and that he stopped taking pain medication. CP at 84. He was allowed to perform a
light exercise program and play golf.
These progress notes are concrete evidence that the Guthries may have a defense
regarding the amount of noneconomic damages. The trial court awarded $300,000 in general
damages for Terry’s injuries and Celeste’s loss of consortium. That amount could be
legitimately questioned if Terry was essentially pain free and returning to full activities only five
weeks after his low back surgery, as his progress notes suggested.
The Guthries’ showing of a defense may not be particularly strong. But we acknowledge
the difficulty in showing a prima facie defense to a noneconomic damages claim. As the court
noted in Calhoun, noneconomic damages are subjective and determining the amount of such
damages often depends on expert testimony and discovery. 46 Wash. App. at 620. Under these
circumstances, it is appropriate to allow even minimal evidence to establish a prima facie
defense to a noneconomic damages claim. Viewed in a light most favorable to them, the
Guthries presented substantial evidence of at least a prima facie defense.
Further, it appears that the trial court did not even consider the Guthries’ evidence
because of a misunderstanding of the applicable law. In its oral ruling, the court stated that “I
think the most appropriate ruling is that the disputing of the noneconomic damages by itself
seems to be insufficient grounds for oversetting the default.” RP (July 29, 2016) at 28. The trial
court’s ruling that disputing noneconomic damages by itself could not support setting aside a
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default judgment was clear legal error. Multiple cases show that a prima facie defense to
damages can be sufficient to set aside a default judgment. E.g., Little, 160 Wash. 2d at 704;
Showalter, 124 Wash. App. at 513. The trial court’s decision based on this misunderstanding of
the law constituted an abuse of discretion.
5. Substantial Evidence to Support Default Judgment
The VanderStoeps argue that even if the Guthries did show a prima facie defense, the
damages portion of a default judgment cannot be set aside if substantial evidence supports the
amount of the judgment. This argument is based on the court’s statement in Shepard Ambulance
that “the standard for vacating awards of damages from default judgments is the same as the
standard for setting aside awards of damages for trials. Thus, the default award here could be
vacated if there were [sic] not substantial evidence to support the award of damages.” 95 Wn.
App. at 242. The VanderStoeps claim that the Supreme Court adopted this rule in Little when it
stated, “The amount of damages in a default judgment must be supported by substantial
evidence.” 160 Wash. 2d at 704.2
However, neither Shepard Ambulance nor Little eliminated the White prima facie defense
factor for setting aside a default judgment. In Shepard Ambulance, the court stated that “a trial
court has discretion to vacate the damages portion of a default judgment even where no
meritorious defense is established.” 95 Wash. App. at 241. In that context – i.e., when the
defendant had not presented a prima facie defense – the court stated that a defendant had to
2
The trial court apparently adopted this approach, concluding that it would deny the Guthries’
motion to set aside the default judgment because there was “substantial evidence of substantial
injury” and “substantial evidence . . . that the damages entered by the Court were legitimately
entered and appropriately entered at that time.” RP (July 29, 2016) at 28.
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No. 49597-0-II
show that substantial evidence did not support the plaintiff’s award to set aside the damages
portion of a default judgment. 95 Wash. App. at 241-42. And the court in Little more recently
confirmed that “a party who moves to set aside a judgment based upon damages must present
evidence of a prima facie defense to those damages.” 160 Wash. 2d at 704 (emphasis added). This
passage from Little comes immediately before the language the VanderStoeps quote about
substantial evidence. Therefore, although Shepard Ambulance and Little establish that a default
damages award must be supported by substantial evidence, they also confirm that the moving
party must raise only a prima facie defense to vacate an award.
Here, the proper inquiry for evaluating the Guthries’ motion to set aside the default
judgment was whether substantial evidence supported a prima facie defense to the
VanderStoeps’ damages claim, not whether substantial evidence supported the trial court’s
damages award.3 The proper inquiry for the trial court was whether the Guthries were “able to
demonstrate any set of circumstances that would, if believed, entitle the defendant to relief.” Ha,
182 Wash. App. at 449.
6. Conclusion
We conclude as a matter of law that the Guthries established a prima facie defense to the
VanderStoeps’ noneconomic damages claim. Therefore, they satisfied the first White factor.
3
Arguably, there was not substantial evidence to support the trial court’s $300,000 general
damages award. The VanderStoeps submitted no medical records or any other documentation
regarding Terry’s injuries, and no declaration from either Terry or Celeste. The only “evidence”
submitted in support of the default judgment was a short declaration from Robison summarizing
Terry’s injuries, treatment, and wage loss. And at the default judgment hearing, Terry and
Celeste provided very brief testimony that did not elaborate in any way on Terry’s injuries or
recovery.
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C. REASON FOR FAILURE TO TIMELY APPEAR
The Guthries argue that they satisfied the second White factor because their actions in
properly giving American Family notice of the lawsuit did not cause their failure to timely
appear. We agree.
1. General Principles
Whether a defendant’s failure to timely appear in an action results from mistake,
inadvertence, surprise, or excusable neglect is determined based on the particular facts of each
case. See Akhavuz, 178 Wash. App. at 534-35. The trial court has broad discretion over the issue
of excusable neglect. Rosander, 147 Wash. App. at 406.
Unlike for the prima facie defense factor, the trial court does not assess evidence of the
second factor in the light most favorable to the defendant. Id. Instead, the trial court may make
credibility determinations and weigh the evidence in order to determine whether the defendant
can show mistake, inadvertence, or excusable neglect. Id.
When the defendant’s insurer is involved, relevant facts can include the defendant’s
promptness in notifying the insurer of an outstanding claim, White, 73 Wash. 2d at 354; whether the
movant reasonably believed that the insurer was resolving the claim, Berger v. Dishman Dodge,
Inc., 50 Wash. App. 309, 311-12, 748 P.2d 241 (1987); Calhoun, 46 Wash. App. at 621; whether the
insurer provided adequate information to the defendant regarding what to do when served,
Norton v. Brown, 99 Wash. App. 118, 124, 992 P.2d 1019 (1999); Calhoun, 46 Wash. App. at 621;
what steps the defendant took to follow the lawsuit’s progress, White, 73 Wash. 2d at 355; Akhavuz,
178 Wash. App. at 537; and the amount of time before the defendant moved to vacate. Akhavuz,
178 Wash. App. at 538.
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2. Insurer’s Failure to Respond to Lawsuit
Here, American Family’s failure to act after receiving notice of the VanderStoeps’
lawsuit caused the Guthries’ failure to timely appear. The cases addressing a defendant’s failure
to timely appear because of the interaction between the defendant and an insurer generally fall
into three factual scenarios.
The first scenario occurs when the defendant fails to notify the insurer that a complaint
has been served based on a misunderstanding about whether the insurer already knows about the
lawsuit and is defending. In this situation, the general rule is that the defendant’s failure to
appear is excusable. See Norton, 99 Wash. App. at 124; Calhoun, 46 Wash. App. at 621. “A
genuine misunderstanding between an insured and his insurer as to who is responsible for
answering the complaint will constitute a mistake for purposes of vacating a default judgment.”
Norton, 99 Wash. App. at 124.
The second scenario occurs when the defendant notifies its insurer that a complaint has
been served and the insurer fails to arrange for a timely appearance because of a legitimate
excuse. In this situation, the general rule is that the insurer’s mistake or excusable neglect can be
considered in excusing the defendant’s default. Berger, 50 Wash. App. at 312. In Berger, the
court rejected the plaintiff’s argument that only the acts of the insured defendant could be
considered in assessing mistake or excusable neglect, not the acts of the insurer. Id. The court
stated, “The acts or omissions of an insurance carrier will be imputed to the insured for purposes
of vacating a default judgment.” Id.
The third scenario occurs when the insured notifies the insurer or the insurer otherwise
receives notice that a complaint has been filed, but the insurer fails to timely appear without a
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legitimate excuse. In this situation, the general rule is that the trial court should focus on
whether the defendant, not the insurer, acted with excusable neglect.
The Supreme Court outlined this rule in White. In that case, the defendant promptly
notified his insurance agent when he was served with a summons and complaint and justifiably
believed that the insurer would provide counsel to defend the lawsuit. 73 Wash. 2d at 354-55. The
Supreme Court stated:
We need not now decide whether or not there was in fact any culpable neglect on
the part of the insurer or its agents, for we are satisfied that in any event the instant
circumstances do not warrant an imputation of any such fault to defendants, who
were otherwise found to be blameless.
Id. at 354. The court stated that “we would be most reluctant to hold that Mr. Holm tendered the
defense of the action to the insurer at his peril.” Id. at 355. Therefore, the court concluded that
the defendant had established that his failure to appear was based on a bona fide mistake. Id.
Three court of appeals cases have addressed this third scenario. In Gutz, a decision of
this court, the defendant promptly left a message with his insurer after being served with a
complaint. 128 Wash. App. at 919. The insurance adjuster did not remember receiving the call
and the insurer claimed that it was unaware of the lawsuit until after the default judgment had
been entered. Id. Without analysis, this court stated that from the defendant’s perspective, those
facts demonstrated a “misunderstanding” between the defendant and the insurer, that it was
reasonable for the defendant as a layperson to believe he did not need to take further steps, and
that the defendant’s failure to confirm the insurer’s receipt of his call was not an equitable and
just reason to deny him a trial on the merits. Id.
In Norton, the defendant did not notify his insurer that a summons and complaint had
been served, but the plaintiff’s attorney sent a copy of the complaint to the insurer. 99 Wash. App.
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at 120. The insurer did not retain counsel to appear for the defendant until after a default was
entered. See id. at 120-21, 125. The court rejected the plaintiff’s argument that the focus should
be on the insurer’s failure to protect the interests of its insured. Id. at 125. The court pointed out
that the defendant, not the insurer, was seeking to vacate the default judgment. Id. The court
held that the trial court abused its discretion by focusing more on the insurer’s conduct than on
the defendant’s excusable neglect. Id.
In contrast, Division One in Akhavuz focused more on the insurer’s actions in this
situation. In that case, the defendant faxed the summons and complaint to his insurer, but the
insurer failed to retain counsel to appear for the defendant and the plaintiff obtained a default
judgment. 178 Wash. App. at 530. The insurer offered no excuse for its failure to retain counsel.
Id. at 536. The trial court vacated the default judgment, ruling under White that the insurer’s
negligence could not be imputed to an innocent insured. Id. at 534.
Division One held that the trial court erred in vacating the default judgment. Id. at 528.
The court noted that the defendant had presented no evidence of mistake or misunderstanding on
the part of its insurer or defense counsel that would excuse the failure to timely appear. Id. The
court emphasized that “[t]here is no ‘innocent insured doctrine’ that allows an insurer to escape
responsibility by keeping its insured unaware that the matter is being neglected.” Id. at 528-29;
see also id. at 534. The court further stated:
Insurance companies do not have an automatic right to vacation of a default
judgment when they fail to communicate to an insured that nothing is being done.
If an insurer’s reasonable excuse for a short delay can be attributed to the defendant
for purposes of weighing the second White factor, as was done in Berger, there is
no reason why the insurer’s lack of a reasonable excuse for a lengthy delay cannot
also be attributed to the defendant.
Id. at 538.
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But the court in Akhavuz also considered the defendant’s conduct. The court pointed out
that after the defendants faxed the complaint to the insurer, they heard nothing about the lawsuit
for more than a year and made no effort to confirm that it was being defended. Id. at 537. The
court stated that “a defendant’s failure to ‘pursue the adjuster with inquiries relative to the
progress of the matter’ is a factor that can weigh against a finding of excusable neglect, and in
this case, it does.” Id. (quoting White, 73 Wash. 2d at 355). The court also found to be relevant the
fact that the defendant waited for a prolonged period – approximately seven months after
learning of the default – to file a motion to vacate. Akhavuz, 178 Wash. App. at 536. This delay,
the court noted, essentially halted the adversary process. Id. at 538.
The court in Akhavuz apparently found that neither the defendant nor the insured had a
legitimate excuse for failing to timely appear. This would constitute a fourth scenario. In that
situation, there would be no question that the default did not result from mistake or excusable
neglect. See Smith v. Arnold, 127 Wash. App. 98, 113, 110 P.3d 257 (2005) (finding no excusable
neglect when neither the defendant’s nor the insurer’s failure to appear was the result of
excusable neglect).
3. Mistake/Excusable Neglect Analysis
Here, the Guthries took appropriate steps to ensure that American Family would arrange
to defend them against the VanderStoeps’ lawsuit. Kathleen contacted American Family on the
same day that the summons and complaint was served and actually spoke with an American
Family representative about the lawsuit. She then followed up with two telephone calls over the
next nine days. Her understanding and expectation that American Family would handle the case
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was reasonable. Therefore, as in White and Gutz, the failure to timely appear, from the Guthries’
perspective, was the result of mistake, inadvertence, surprise, or excusable neglect.
Conversely, American Family did not present any legitimate excuse for its failure to
arrange for a defense of the Guthries. The evidence showed that Kathleen had talked to a claims
representative about service of the summons and complaint and followed up with two voicemail
messages. American Family’s only explanation was that Thrush was not aware that the lawsuit
had been served. But American Family did not explain why the notice and the messages were
not forwarded to Thrush. American Family simply stated that it was “not disputing at this time
that they have a line in their system that [Kathleen] made some calls. The problem is we don’t
know what that line means, they’re trying to find out. It just simply didn’t make its way to Ms.
[Thrush].” RP (July 29, 2016) at 23-24. And American Family did not explain why nobody else
retained counsel to defend the Guthries after receiving Kathleen’s notice.
Further, Robison told American Family that the VanderStoeps would be filing a lawsuit
and Thrush warned Kathleen that a lawsuit might be filed. But then Thrush waited for over two
months before checking in with Robison about the lawsuit.
In the absence of any explanation, it appears that American Family’s failure to arrange
for an attorney to defend the Guthries resulted in a breakdown of its internal office procedures.
The general rule is that “if a company’s failure to respond to a properly served summons and
complaint was due to a breakdown of internal office procedure, the failure was not excusable.”
TMT Bear Creek Shopping Ctr., Inc. v. PETCO Animal Supplies, Inc., 140 Wash. App. 191, 212,
165 P.3d 1271 (2007). Therefore, American Family’s failure to arrange for a timely appearance
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on behalf of the Guthries did not result from mistake, inadvertence, surprise, or excusable
neglect.
The question here is which party’s behavior controls: the Guthries’ legitimate excuse for
not appearing or American Family’s inexcusable neglect. Under White, Norton, and Gutz, the
proper focus is on the Guthries’ conduct rather than on American Family’s conduct. Under
Akhavuz, American Family’s inexcusable conduct arguably could be imputed to the Guthries and
preclude them from establishing mistake, inadvertence, surprise, or excusable neglect.
However, we believe that Akhavuz is distinguishable from the facts of this case. In that
case, the court faulted the insured for doing nothing for a year after faxing the insurer a summons
and complaint and then waiting for an extended period before moving to vacate the default order.
Akhavuz, 178 Wash. App. at 536-37. The court stated that these factors weighed against a finding
of excusable neglect. Id.
Here, the Guthries talked with an American Family representative about service of the
complaint and followed up twice. They also quickly moved to vacate after learning of the
default. Further, the court’s statement in Akhavuz that an insurer’s misconduct could be imputed
to a defendant for purposes of upholding a default judgment is inconsistent with the Supreme
Court’s ruling in White that, under the facts of that case, the insurer’s conduct would not be
imputed to a blameless defendant. White, 73 Wash. 2d at 354.
We agree with the court in Akhavuz that there is no “automatic” innocent insured rule.
As noted above, what is just and equitable must be determined based on the specific facts of each
case, not based on a fixed rule. Little, 160 Wash. 2d at 703-04. Ultimately, we must determine
based on the facts of this case whether it is fair and equitable to subject the Guthries to a default
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judgment based on the inexcusable conduct of its insurer. Allowing the default judgment to
stand here is not fair to the Guthries. They did what they were supposed to do when served with
the complaint. Like the Supreme Court in White, we are reluctant to hold that the Guthries
tendered the defense of the action to American Family at their peril. 73 Wash. 2d at 355.
4. Ultimate Liability of Insurer
The VanderStoeps argue that if the default judgment stands, American Family and not the
Guthries will have to pay the full judgment. Because American Family breached its duty to
defend the Guthries, it could be found liable for the full amount of the judgment, even for
amounts above policy limits. See Truck Ins. Exch. v. VanPort Homes, Inc., 147 Wash. 2d 751, 765-
66, 58 P.3d 276 (2002); Kirk v. Mt. Airy Ins. Co., 134 Wash. 2d 558, 561, 951 P.2d 1124 (1998).
The VanderStoeps argue that upholding the default judgment will place the cost of the judgment
on American Family, where it belongs because of its inexcusable conduct.
However, although the Guthries may have a strong bad faith claim against American
Family if we do not set aside the default judgment, they are not guaranteed to prevail in a bad
faith action. In addition, pending resolution of that claim, the large judgment would remain
against the Guthries personally, which might adversely affect them.4 Finally, the VanderStoeps
provide no authority for the proposition that who pays a default judgment is relevant to the
second White factor.
4
During oral argument, the VanderStoeps for the first time pointed out that American Family
had filed a supersedeas bond guaranteeing payment of the judgment against the Guthries if we
affirm. However, they cite no authority for the proposition that the insurer’s posting of a
supersedeas bond is a factor that can be considered in determining whether to set aside a default
judgment. And the parties have not addressed whether the Guthries could be responsible for a
portion of any bond payment.
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5. Conclusion
We conclude that the Guthries’ failure to timely appear resulted from mistake,
inadvertence, surprise, or excusable neglect despite American Family’s inexcusable conduct.
Because of the Guthries’ diligence, American Family’s conduct should not be imputed to them to
uphold the default judgment. Accordingly, we hold that the Guthries satisfied the second White
primary factor.
D. SETTING ASIDE DEFAULT JUDGMENT
The Guthries presented a prima facie defense to the default judgment’s noneconomic
damages award by presenting evidence that Terry had limited pain and was recovering well after
his surgery. Further, the Guthries’ failure to timely appear in response to the VanderStoeps’
lawsuit was not the result of the Guthries’ conduct – Kathleen gave American Family verbal
notice of the lawsuit, had a lengthy conversation with an American Family representative about
the lawsuit, made two follow-up calls, and reasonably believed that American Family would
defend. The Guthries’ diligence means that American Family’s inexcusable failure to respond to
the lawsuit should not be imputed to them. And there is no dispute that the Guthries satisfied the
third and fourth White factors of due diligence and lack of substantial hardship to the
VanderStoeps.
Accordingly, we hold that the trial court abused its discretion in denying the Guthries’
motion to set aside the default judgment. However, as the Guthries concede, only the
noneconomic damages portion of the judgment – Terry’s general damages and Celeste’s loss of
consortium damages – should be set aside. The default judgment remains valid with regard to
liability, past medical expenses of $61,836.44, and past income loss of $12,000.
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No. 49597-0-II
CONCLUSION
We reverse the trial court’s denial of the Guthries’ motion to set aside the noneconomic
damages portion of the default judgment, and we remand for further proceedings.
MAXA, A.C.J.
We concur:
JOHANSON, J.
LEE, J.
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