Keller v. Allstate Ins. Co.

• Citation: 915 P.2d 1140,81 Wn.App. 624
• Decision Date: 10 May 1996
• Docket Number: No. 18784-1-II,18784-1-II
• Court: Court of Appeals of Washington
• Parties: Lydia KELLER and Delroy Keller, wife and husband, Appellants, v. ALLSTATE INSURANCE COMPANY, Respondent.

Page 624

81 Wn.App. 624

915 P.2d 1140

Lydia KELLER and Delroy Keller, wife and husband, Appellants, v. ALLSTATE INSURANCE COMPANY, Respondent.

No. 18784-1-II.

Court of Appeals of Washington,

Division 2.

May 10, 1996.

Superior Court, Cowlitz County; No. 93-2-01096-7, James Edgar Warme, Judge.

Douglas Fredrick Foley, Bullivant Houser Bailey Pendergrass & Hoffman, Vancouver, for Respondent.

Duane Charles Crandall, Roethler Crandall & Long, PS, Longview, for Appellants.

SEINFELD, Chief Judge.

A jury awarded Lydia and Delroy Keller substantially more than Allstate Insurance Company (Allstate) had earlier offered as settlement of their personal injury claim. The Kellers then brought this action alleging that Allstate made the low offer in bad faith and in violation of the Consumer Protection Act (CPA). The trial court found for Allstate and the Kellers appeal. We conclude that the trial court properly considered the settlement offer in light of the circumstances known to Allstate at the time. Thus, we affirm.

FACTS

In November 1989, an underinsured motorist rear-ended Keller's Lincoln Town Car. Keller, a 57-year-old registered nurse, injured her neck and knees. She refused offers by the police at the accident scene to transport her to the hospital. Instead, she drove herself home without assistance.

After arriving home, Keller had her husband, Delroy, take her to an emergency medical center. She presented complaints of neck pain. The staff took x-rays and diagnosed her injury as a neck and upper back strain. They then sent her home with a "soft cervical collar" and pain killers.

Two weeks later, on the advice of her attorney, Keller consulted an orthopedic surgeon, complaining of instability in her right knee and pain in her neck and left knee. The doctor found no evidence of cervical spine injury and found her knees to be "tender" but "otherwise normal." Diagnosing Keller's condition as "bilateral knee contusions," ¹ he opined that the pain would subside within six weeks of the accident.

After the accident, Keller also began experiencing pain in her face and jaw. In December 1989, she visited a dentist, who concluded that her jaw was "overclosed." ² X-rays of the jaw did not reveal any "traumatically induced" conditions. The dentist attributed the deviations he did find to the "natural aging process."

Later that month, Keller began treatment for her back and jaw pain with a physical therapist. She attended 28 therapy sessions over the next six months and reported improvement in her back condition. The physical therapist noted several times during the course of treatment that Keller's physical discomfort increased with psychological stress.

Four months after the accident, Keller visited a second orthopedist with complaints of pain in her right knee. The orthopedist observed some swelling in both of her knees, the right greater than the left, and diagnosed her condition as bruised knees. X-rays of the knees came back "normal" and "looked quite good." The orthopedist found no instability in the knee caps or injury to the ligaments. The range of movement in both knees was "normal and identical." At the end of the examination, the orthopedist prescribed quadriceps strengthening exercises and invited her to return should she need further consultation or direction. She never sought further treatment from this doctor.

Keller's bills for medical treatment resulting from the accident totaled approximately $3,270. Of that amount, she spent approximately $1,700 on physical therapy.

The Kellers recovered the policy limit of $25,000 from the underinsured motorist's insurance carrier. As this amount did not cover all of the Kellers's damages, in late May 1991 she filed an underinsured motorist (UIM) claim for $10,000 with their carrier, Allstate, and demanded arbitration. Allstate offered to settle for $8,000. Shortly after the Kellers rejected the offer, Allstate, exercising a contractual right to resolve the dispute through litigation, filed a complaint in Cowlitz County Superior Court.

At trial in September 1992, the Kellers made an oral claim for damages of $125,000, the total combined coverage of the underinsured motorist's $25,000 policy and their $100,000 UIM policy with Allstate. The jury awarded the Kellers a total of $75,200 in damages. As $25,000 already had been paid by the underinsured motorist's carrier, Allstate owed them $50,200, plus costs.

On October 5, 1993, the Kellers filed the complaint in this case. They alleged that Allstate had engaged in an unfair trade practice by offering to settle their claim for $8,000, a sum substantially smaller than the amount ultimately recovered at trial. See WAC 284-30-330(7). Subsequently, the Kellers twice amended their complaint, adding a claim for tortious breach of the duty to act in good faith and a request for damages for emotional distress and pain and suffering.

The parties cross-claimed for summary judgment. The trial court granted partial summary judgment to Allstate, ruling that the Kellers, as a matter of law, could not recover damages for emotional distress and pain and suffering. It later denied the Kellers's motion for reconsideration.

The remaining issues went to trial on a stipulated record. After a one day trial, the court found that the jury's verdict (1) was not "a fluke or runaway verdict," (2) was the "result of exceptional work by plaintiffs' Counsel," and (3) that Allstate had not acted in bad faith.

On appeal, the Kellers contend that the trial court erred in (1) finding for Allstate because Allstate's $8,000 offer was substantially less than their eventual recovery, and, thus, as a matter of law, it demonstrated bad faith; and (2) denying their motion for summary judgment and granting summary judgment to Allstate on the emotional distress and pain and suffering claim because the CPA is not the exclusive remedy for a claim of insurer bad faith.

I

The Kellers contend that they are entitled to recover their damages for being forced, by Allstate's bad faith, to resort to litigation to recover the true value of their claim. Allstate argues that its settlement offer was reasonable under the circumstances.

An insurer's breach of its duty of good faith represents an unfair trade practice actionable under the CPA and entitles an insured to recover treble damages and attorney's fees. See Mason v. Mortgage Am., Inc., 114 Wash.2d 842, 855-56, 792 P.2d 142 (1990); RCW 19.86.020, 090. To prevail, a private party must prove among other things that "the defendant's act was unfair or deceptive." Insurance Co. of Pennsylvania v. Highlands Ins. Co., 59 Wash.App. 782, 786, 801 P.2d 284 (1990), review denied, 116 Wash.2d 1032, 813 P.2d 583 (1991). A violation of WAC 284-30-330 constitutes a per se unfair trade practice. Industrial Indem. Co. of the Northwest, Inc. v. Kallevig, 114 Wash.2d 907, 923, 792 P.2d 520 (1990); Starczewski v. Unigard Ins. Group, 61 Wash.App. 267, 273, 810 P.2d 58, review denied, 117 Wash.2d 1017, 818 P.2d 1099 (1991).

A

The Kellers contend that Allstate breached its duty of good faith by compelling them "to ... submit to litigation ... to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in such actions or proceedings." WAC 284-30-330(7). Promulgated pursuant to rule-making authority granted by RCW 48.02.060 ³ and 48.30.010(2), ⁴ WAC 284-30- identifies 19 insurance practices found by the insurance commissioner to be unfair forms of competition or unfair or deceptive acts. Starczewski, 61 Wash.App. at 272, 810 P.2d 58. A violation of this regulation represents a breach of an insurer's duty to act in good faith. Tank v. State Farm Fire & Casualty Co., 105 Wash.2d 381, 386, 715 P.2d 1133 (1986).

RCW 48.01.030 requires insurers to deal with their insureds in good faith. ⁶ Kallevig, 114 Wash.2d at 916, 792 P.2d 520. To establish a breach of this duty, a party must prove that the defendant acted unlawfully and in violation of public policy. Salois v. Mutual of Omaha Ins. Co., 90 Wash.2d 355, 358, 581 P.2d 1349 (1978); Highlands Ins. Co., 59 Wash.App. at 786, 801 P.2d 284. An insurer violates its duty to act in good faith when it acts without reasonable justification. Kallevig, 114 Wash.2d at 917, 792 P.2d 520; Whistman v. West Am. of Ohio Casualty Group of Ins. Cos., 38 Wash.App. 580, 585, 686 P.2d 1086 (1984).

In their brief, the Kellers contend that a violation of this provision can be established simply by comparing the pretrial settlement offer to the award ultimately recovered at trial, without reference to the circumstances or reasoning underlying the original offer or the ultimate jury verdict. However, at oral argument, they conceded that it might be appropriate for the trial court to consider the facts and circumstances at the time the insurer made the offer. The latter approach is consistent with the concept of bad faith.

The fact that the insurer is ultimately unsuccessful in its policy defense does not render the insurer liable for bad faith refusal to settle claims provided that the insurers['] actions were reasonable, and the insurer had probable cause to pursue its defense. Therefore, the insurer should not be held liable for extra-contractual damages where there is a legitimate controversy as to whether benefits are due or the amount of such benefits....

15A George J. Couch, et al., Couch on Insurance 2d (rev. ed.) § 58:1 (1983) (footnotes omitted).

RCW 48.02.060 authorizes the commissioner to make "reasonable rules" and RCW 48.30.010 proscribes "unfair or deceptive acts." To determine whether a defendant acted reasonably, fairly, or deceptively, it is necessary to consider the circumstances surrounding the allegedly improper act. Adoption of a strict number comparison approach would make an insurer strictly liable for damages any time its pretrial evaluation of a claim turned out to be substantially less than the jury's verdict....