12.14.2016

Washington Court of Appeals Sides with Insurer – No Presumption of Harm in Stipulated Settlement

In Mutual of Enumclaw Ins. Co.  v. Myong Suk Day; Division I, No. 75633-8-I, the  Washington Court of Appeals held that the insured suffered no harm where  the plaintiff  had  fully and unconditionally released its claims against the insured, reversing the trial court’s imposition of coverage by estoppel.

Usually, when an insured enters a stipulated judgment with a covenant not to execute, the insured agrees to a judgment and assigns claims against its insurance carrier to the claimant in exchange for a covenant not to execute on the insured’s other assets. If the insurer has engaged in bad faith while defending under a reservation of rights, then the claimant pursuing the assigned bad faith claim against the insurer may be entitled to a rebuttable presumption of harm and coverage by estoppel.

In this case, however, the insured retained her claims against her insurer and assigned only her claims against her independent insurance agent to the tort plaintiffs.  Also, the settlement agreement included language that required the tort plaintiffs to sign a full satisfaction of judgment of their claims against the insured once the assigned claims against the agent were concluded. After the tort plaintiffs settled with the agent, the trial court (in a consolidated action) conducted a reasonableness hearing, concluded that the settlement amount was reasonable, and imposed coverage by estoppel.

In Werlinger v. Clarendon Nat. Ins. Co., 129 Wn. App. 804, 120 P.3d 593 (2005), the Washington Court of Appeals held that an insured could not establish harm where the insured and his spouse were shielded from personal liability by their bankruptcy status and there was no competent evidence that they suffered emotional distress as result of insurer’s actions. Here, relying on Werlinger, the Court of Appeals held that the trial court erred when it imposed the remedy of coverage by estoppel since the insured was legally insulated from any exposure on the agreed judgments because of the settlement provision granting her the right to full satisfaction of the judgments against her, independent of any claims against her insurance carrier.

 

Article by Paul Rosner and Jennifer Dinning.

 

Soha and Lang attorneys are available to assist insurer clients in understanding and addressing the impact of this decision both during the claims handling process and after an allegation of bad faith claims handling has been made.

Disclaimer: The opinions expressed in in this blog are those of the authors and do not necessarily reflect those of Soha and Lang, P.S. or its clients.

Posted by Paul Rosner