Division II affirmed that an $8.75 Million stipulated judgment amount was unreasonable.

Water's Edge Homeowners Ass'n v. Water's Edge Associates, Dkt. No. 37415-3-II, __ P.3d __, 2009 WL 3087495 (2009).

Division Two of the Washington Court of Appeals affirmed a Clark County trial court’s ruling that an $8.75 Million stipulated judgment amount was unreasonable, and further found that the trial court did not abuse its discretion when it found that $400,000 would have been a reasonable settlement amount.

This was a construction defect action arising out of a condominium conversion project in Clark County, WA. After a failed mediation, the defendants and the plaintiff in the case stipulated to a covenant judgment and assignment of bad faith claims and then moved for a reasonableness hearing. The defendants’ insurers, Farmer’s Insurance Exchange, Truck Insurance Exchange and Mid-Century Insurance Company then intervened to participate in the reasonableness hearing and to conduct limited discovery.

After hearing a full day of argument at the reasonableness hearing and taking the case under advisement for five months, the trial court ruled that $8.75 million was not a reasonable stipulated judgment amount. Instead, the court found that a $400,000 settlement would have been reasonable.

The court of appeals affirmed and found that the trial court did not abuse its discretion. Additionally the court stressed that the trial court correctly found that expectation or remediation damages were not appropriate because the it had dismissed all the contractual warranty claims and thus, the normal cost of repair damages under the Association’s warranty claims were unavailable.

Furthermore, the court of appeals found that when disputing the reasonableness of a settlement, the insurer does not have the burden to prove fraud or collusion, rather “after the parties establish reasonableness, the Chaussee factor is merely whether there is any evidence of bad faith, collusion, or fraud . . . . Nor does any "evidence of bad faith, collusion, or fraud" appear to invoke the typical standard for proof of fraud, which must be proved by evidence that is clear, cogent, and convincing. The burden here was not on Farmers but, rather, on the HOA to prove its settlement was reasonable.”

Finally, the court also held that the trial court properly dismissed the case, as opposed to entering a final judgment in an amount it had already deemed unreasonable or in an amount that the parties’ had not stipulated to.

Farmers Insurance Exchange, Truck Insurance Exchange and Mid-Century Insurance Company were represented by Tyna Ek and Misty Edmundson of Soha & Lang, P.S.

By Misty Edmundson