On
Monday, the Washington State Court of Appeals held that a stipulated covenant
judgment settlement that is found “reasonable” by the court “sets a floor, not
a ceiling, on the damages a jury may award” in an assigned bad faith
case. So in Miller v. Safeco Ins. Co. et. al, a $4.15 million
stipulated judgment became a $13 million bad faith verdict, to which the court
added $7 million in prejudgment interest, approximately $1.6 million in
attorneys’ fees plus an additional appellate fee award, and remanded for a
proper calculation of court costs and post-judgment interest.
The
underlying case involved an auto accident in which three passengers of the
at-fault driver who rear-ended a truck were claiming bodily injuries. The
auto was insured by Safeco, under a $500,000 liability policy and a $1 million
umbrella policy. Safeco defended without reservation, and eventually
offered its policy limits. Safeco’s alleged bad faith was primarily
related to its failure to advise a claimant pre-suit of its policy limits
(Safeco claimed the insured did not consent to disclosure, but this was
disputed), a dispute over the underinsured motorist limit in the policy, and
Safeco’s failure to offer its umbrella policy limits fast enough. Safeco
first offered its $500,000 liability limits, and then a few months later in the
litigation offered the additional $1,000,000 umbrella policy limits. But
the claimants were not willing to settle all three claims for policy limits
when offered. Instead, the parties stipulated to covenant judgments
totaling $4.15 million (on top of the $1.5 million that Safeco contributed and
$300,000 that another carrier contributed to the settlement).
Safeco
did not challenge the reasonableness of the stipulated judgment amounts.
Rather, Safeco denied it had acted in bad faith, and argued that if found to
have acted in bad faith, then damages were set at $4.15 million. The
primary dispute on appeal was whether Washington case law saying a reasonable
stipulated judgment amount sets the “presumptive measure of damages” in the
subsequent bad faith case means the $4.15 million stipulated judgment was a
damage floor or ceiling. The appellate court ruled it was a floor,
upholding the following instruction to the jury:
If you find for the plaintiff on Patrick Kenny's claim
for failure to act in good faith your verdict must include the following
undisputed items:
The net amount of the Stipulated Order Re: Reasonableness
of Settlements for $4,150,000.
In addition, you should consider the following past and
future elements of damages:
1.
Lost or diminished assets or property, including
value of money;
2.
Lost control of the case or settlement;
3. Reasonable value of expert or other costs or
reasonable attorney fees incurred for the private counsel retained by Patrick
Kenny;
4.
Damage to credit or credit worthiness;
5.
Effects on driving or business insurance or
insurability;
6.
Emotional distress or anxiety.
The burden of proving Patrick Kenny did not suffer
damages rests upon Safeco. It is for you to determine, based upon the evidence,
whether any particular element has been proved by a preponderance of the
evidence.
The
jury awarded $13 million in damages. Because the stipulated settlement
agreement called for a 12% interest rate, the court added $7 million in
prejudgment interest, but held that post-judgment interest should be calculated
at the much lower statutory tort rate. In calculating the $1.6 million
attorney fee award, the court permitted plaintiff attorneys to reconstruct
their billable hours for the several years the case was in litigation (3,229.8
hours) since plaintiff’s counsel had not kept contemporaneous time records, and
held that a $400-450/hr. attorney fee with a 1.5% multiplier was
reasonable.
Soha
& Lang, P.S. 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 author and do not
necessarily reflect those of Soha & Lang, P.S. or its clients.
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