Washington Federal Trial Court Rules That A finding of Bad Faith Is A Prerequisite for Presumptive Damages Outside of Policy Limits

RSUI Indemnity Company, Inc. v. Vision One, LLC, Western District of Washington case number 2:08-cv-01386-RSL, Order on Summary judgment (Dkt. No. 152) (February 21, 2013)

After the state court reasonableness action was litigated and the reasonable settlement value of the udnerlying action was determined to be $2.3M, Vision One, the insured's assignee, then sought summary judgment against  insurer, RSUI, that the presumptive measure of RSUI’s liability was $2.3 million, the value of the settlement between Vision One and the insured in the underlying litigation (that was found reasonable). RSUI opposed Vision One’s motion on the basis that there must be a finding of bad faith before the presumptive value of the damages may exceed the limits of the underlying insurance policy.  In this coverage action, the court had previously ruled that the RSUI policy provided coverage, but that RSUI had not committed a bad faith coverage determination, but left open whether RSUI had committed bad faith in its claims handling.

First, RSUI opposed Vision One’s request for presumptive damages on the basis that presumptive damages were not appropriate in this case because the insured had not been harmed by the underlying litigation.  The court did not find this argument persuasive and reasoned, “Washington courts have repeatedly rejected this argument, finding that “[an] agreement not to execute does not preclude a showing of harm.” Besel, 146 Wn.2d at 737 (alteration in original) (quoting Safeco Ins. Co. of Am. v. Butler, 118 Wn.2d 383, 397 (1992)). “[A] covenant not to execute coupled with an assignment and settlement agreement is not a release permitting the insurer to escape its obligation.” Kagel v. Aetna Life & Cas. Co., 40 Wn. App. 194, 198 (1985).”

Second, RSUI contended that even if presumptive damages were appropriate in this case, the amount of the presumed damages cannot exceed the $1 million limit of the  policy with RSUI, absent a finding of bad faith. Vision One, relying primarily on Mut. Of Enumclaw Ins. Co. v. T&G Const., Inc., 165 Wn.2d 255 (2008), argued that this Court’s earlier finding of coverage under the RSUI policy and the recent appellate court decision affirming the trial court’s reasonableness finding mandated a finding that the presumptive measure of RSUI’s liability in this case is $2.3 million, the reasonable settlement value.

The court found that presumptive damages were appropriate in this case, and having found so, the next issue that court must address is what the amount of the presumptive damages should be.  The court reasoned, “Unlike the present case, T&G Construction did not involve a covenant judgment that exceeded the insured’s policy limits. Vision One concedes that T&G Construction does not expressly address the circumstances presented here, but it concludes that the Washington Supreme Court nevertheless intended its holding in that case to apply to situations in which the covenant judgment is higher than the insured’s policy limits. The Court disagrees.”

The Court reasoned that bad faith needed to be shown to have a presumption of damages in excess of policy limits.  Although the court had earlier ruled that RSUI did not act in bad faith by making an unreasonable coverage determination, the court indicated that Vision One may still be able to establish RSUI’s bad faith based on its failure to investigate, which could enable Vision One to recover more than the policy limits.  That issue was reserved for trial, so in order to get a presumptive measure of damages above policy limits, the court ruled that Vision One must prove RSUI’s bad faith claims handling at trial. 

The court also found that Vision One was entitled to pre-judgment interest on the presumptive measure of damages.  The court reasoned, “Having determined that coverage existed and that the presumptive measure of damages is the policy limit, the Court finds that the amount Vision One seeks to recover is a “liquidated sum,” and therefore, Vision One is entitled to prejudgment interest.”  Vision One argued that it was entitled to a 12% rate for prejudgment interest and RSUI argued that the rate should be set under RCW 4.56.110(3)(b) for tort claims.  The court found that issues of fact regarding the components of the final judgment existed, and that determining how the interest rate would be set was a question to be left for after trial.