Indemnitor’s Comparative Fault Held Not Pertinent to Reasonableness of Indemnitee's Settlement of Underlying Claims

The Heights at Issaquah Ridge Owners Association v. Derus Wakefield I, LLC (Div. I, July 7, 2008).

A condominium owners association sued the condominium developer, Derus, alleging construction defects. Derus filed a third-party action for contractual indemnity against the general contractor, Sacotte. Derus’ insurer, Steadfast, acknowledged coverage under one of two policies. After the trial court entered summary judgment on liability against Derus, Derus settled with the association and assigned its rights to the association, which then negotiated a settlement with Sacotte. Derus and Sacotte each stipulated to separate judgments against them in the amount of $8,344,993.

Steadfast intervened at the reasonableness hearings and argued that the settlements were not reasonable. The trial court disagreed and entered the stipulated judgments. The association, as Derus’ assignee, then sued Steadfast to recover the amount of the stipulated judgment against Derus. Steadfast appealed the ruling that the Derus’ settlement with the association was reasonable.

On appeal, Steadfast argued that the trial court abused its discretion in not considering two of the six “Glover factors” that govern whether a settlement is reasonable: (1) the relative fault of the settling parties and (2) the interests of a party not released by the settlement (i.e., Steadfast). The court of appeals disagreed and affirmed.

Steadfast argued that relative fault should have been considered because Derus and Sacotte had equal culpability, yet each settled for the full amount of stipulated damages. The court of appeals held that relative fault was not pertinent to the reasonableness of Derus’ settlement with the association. The association had no claim against Sacotte, which was a party only because Derus sued for indemnity. The court stated, “Construction defect cases . . . implicate contractual liability, rather than tort liability. . . . [C]omparative fault has no role in construction defect cases which involve contractual obligations to indemnify.”

As to the second factor, the court of appeals held that Steadfast’s only interest with regard to the settlement was the possibility of bad faith, collusion, or fraud by the settling parties, which was one of the Glover factors properly considered by the trial court.