Stipulated Findings and Conclusions Not Binding on Insurer at Reasonableness Hearing

Green v. City of Wenatchee (Wash. App. Div. III, January 20, 2009)

A lawyer was sued for legal malpractice by four claimants he had represented as criminal defendants. All four cases were subject to a $500,000 insurance policy limit, including defense costs. When approximately $150,000 to $190,000 remained, the insured instructed defense counsel to reject a global settlement offer of $325,000. Defense counsel withdrew after the policy limit was consumed by four years of litigation costs. The insured negotiated settlements directly with the claimants, including entry of a $1 million covenant judgment in favor of one claimant, Doris Green, and assignment of the insured's rights against his insurer, Westport Insurance Corp.

Ms. Green sought a determination that the insured’s settlement with her was reasonable. She presented stipulated findings of fact and conclusions of law to the effect that the insured had incompetently represented Ms. Green and had referred her to another lawyer the insured should have known was incompetent to handle her case. Westport was allowed to intervene and conduct discovery. Westport submitted evidence that the judgment amount was unreasonably high because the insured had viable defenses to the action. Westport contended that Ms. Green could not prove her actual innocence, her claims lacked substantive merit and were barred by statutes of limitations, the judgment amount was grossly disproportionate to amounts she accepted from other defendants, and the consent judgment was the product of collusion.

The trial court ruled that the settlement was reasonable and that Westport was bound by the stipulated findings of fact and conclusions of law and the covenant judgment, relying on Fisher v. Allstate Insurance Co., 136 Wash.2d 240 (1998). In Fisher, the Washington Supreme Court held that an insurer is bound by the findings, conclusions, and judgment entered in the action against its insured when the insurer had notice and an opportunity to intervene in that action.

The court of appeals reversed the determination of reasonableness. The court held that, although the insured and Ms. Green were free to resolve their liability issues, Westport had no standing to challenge their agreement. “The very purpose of a reasonableness hearing is to determine whether the settlement of the underlying liability case is reasonable[.]” The court distinguished a recent decision of the Washington Supreme Court, Mutual of Enumclaw Insurance Co. v. T & G Construction, Inc., in its application of the Fisher rule based on the trial court’s review of the merits of the underlying action in finding the settlement reasonable. The court of appeals observed, “Critically, in contrast to T & G Construction, the court bound Westport to [the insured’s] liability stipulation without making particular reasonableness findings addressing [his] defenses[.]”

The court of appeals remanded for a new reasonableness hearing in which the trial court must address the merits of Ms. Green’s claims and the insured’s defenses in determining whether the settlement is reasonable, giving no deference to the stipulated findings and conclusions.

Court Clarifies Rule on Segregation of Damages Caused by Intentional Tortfeasors

Rollins v. King County Metro Transit (Wash. Ct. App. Div. I, January 20, 2009)

The Washington Court of Appeals held this week that, in cases involving only defendants against whom negligence is alleged, the jury should not be instructed to determine and segregate damages caused by intentional tortfeasors.

In this case, two teenagers were attacked by unknown assailants on and near a bus operated by King County Metro. They sued Metro, alleging it negligently failed to protect them. The trial judge instructed the jury to award only damages proximately caused by Metro’s negligence and not to award damages caused solely by the unknown assailants. Metro unsuccessfully argued that under Tegman v. Accident & Medical Investigations, Inc., the jury must determine the claimants’ total damages and then segregate damages caused by intentional conduct from damages caused by negligence. The jury returned a verdict for the plaintiffs.

The court of appeals affirmed. Acknowledging “considerable confusion” in this area, the court determined the Tegman holding was inapplicable because it “is about joint and several liability.” Tegman involved multiple defendants whose conduct was negligent, intentional, or both, and the Washington Supreme Court held that “negligent defendants are jointly and severally liable only for the damages resulting from their negligence . . . [not] for damages caused by the intentional acts of others.” Distinguishing Tegman, the court of appeals observed: “Here, Metro is the only defendant and negligence is the plaintiffs’ only theory. To recover at all, plaintiffs had to prove their injuries were proximately caused by Metro’s negligence. There is no issue of joint and several liability in this case.”

This new decision limits the holding of Tegman to the circumstances in that case and removes the issue of damages caused by intentional conduct from any case where the intentional tortfeasor is not joined.

Presumption of Receipt Held Inapplicable to Notice of Cancellation Sent by Certified Mail

Cornhusker Casualty Insurance Co. v. Kachman (Wash. S. Ct., December 18, 2008).

In Washington, certified mail is not “mail,” at least not if you are an insurance company sending a notice of cancellation.

In this case, Rockeries, Inc., failed to pay its premiums on time on eleven occasions in four years, and Cornhusker Casualty sent a notice of cancellation each time. The letter in question was sent via certified mail on September 29, 2004, and stated that the policy would be cancelled if payment was not received by October 19, 2004.

On October 22, 2004, Leanne Samples was killed in an automobile accident caused by a Rockeries employee. Cornhusker received the overdue premium installment on October 28, 2004. It returned the payment to the insured and denied coverage for the accident. On November 1, 2004, the undelivered notice of cancellation was returned to Cornhusker.

RCW 48.18.290 establishes a presumption that a notice of cancellation “mailed” to the insured is received. In a declaratory judgment action by Cornhusker, the United States Court of Appeals for the Ninth Circuit certified the following question to the Washington Supreme Court:

Does sending notice of cancellation by certified mail satisfy the “mailed” requirement of RCW 48.18.290 (1997) and give sufficient notice of cancellation to comply with RCW 48.18.290, even if there is no proof that the cancellation letter was received by the insured?

The court responded in the negative. Cornhusker and amicus contended that certified mail is consistent with the statutory procedure for “mailing” a notice of cancellation and is authorized for providing notice in other contexts. The court observed that the statute does not specifically authorize certified mail and found “practical differences between regular mail and certified mail.” The court held that certified mail places a greater duty on the insured than imposed by statute in that it requires the insured to be at home to receive the letter or to pick it up at the post office.

In light of this decision, an insurer sending a notice of cancellation in Washington should use regular mail instead of, or in addition to, certified mail.