Chaussee v. Maryland Cas. Co.

• Decision Date: 04 February 1991
• Docket Number: No. 25540-1-I,25540-1-I
• Citation: 803 P.2d 1339,60 Wn.App. 504
• Court: Washington Court of Appeals
• Parties: Dean CHAUSSEE, et al., Plaintiffs, William R. Nodell, et al., Appellants, v. MARYLAND CASUALTY COMPANY, et al., Respondents. Division 1

Page 504

60 Wn.App. 504

803 P.2d 1339

Dean CHAUSSEE, et al., Plaintiffs William R. Nodell, et al., Appellants, v. MARYLAND CASUALTY COMPANY, et al., Respondents.

No. 25540-1-I.

Court of Appeals of Washington,

Division 1.

Feb. 4, 1991.

Note: Opinion Modified on Denial of Reconsideration by 812 P.2d 487.

J. Murray Kleist, Schroeter Goldmark & Bender, Charles K. Wiggins, Edwards & Barbieri, Seattle, Stafford Frey Cooper & Steward, Thomas D. Frey, Seattle, for appellants

Lane Powell Spears Lubersky, Rudy A. Englund, William H. Helsell, Helsell, Fetterman, Martin, Todd & Hokanson, Michael J. Bond, Lee, Smart, Cook, Martin & Patterson, Seattle, for respondents.

GROSSE, Acting Chief Judge.

William R. Nodell and Shirley E. Nodell (the Nodells), as guardians of Scott Nodell and as assignees of co-plaintiffs Dean Chaussee, Carol Chaussee, and Bellewood Corporation (hereinafter collectively referred to as Chaussee), appeal a judgment notwithstanding the verdict (judgment n.o.v.) resulting in the dismissal of their claims for failure to settle an insurance claim within policy limits and for bad faith. The claims are against the respondents Maryland Casualty Company (Maryland), Chaussee's insurer; Reed, McClure, Moceri & Thonn, P.S. (Reed McClure), the law firm Maryland retained to represent Chaussee; and McDonald & McGarry Company (McDonald), Chaussee's insurance agent and broker. Maryland cross-appeals arguing that the trial court erred in denying its motion for a directed verdict because the Nodells did not prove coverage. We affirm the judgment n.o.v., and thus do not reach the issue raised by Maryland's cross appeal. ¹

In 1979, the Nodells' son Scott was severely injured when his car hit a pole after sliding on an icy road near a condominium construction site. As a result of the accident, Scott is a quadriplegic. In an underlying personal injury action, the Nodells sued Chaussee and King County for negligence in allowing ice to form and remain on a county highway.

Maryland retained Reed McClure to defend Chaussee under a reservation of rights. In March of 1982, Chaussee received interrogatories that requested the amount of the policy's insurance limits. Chaussee answered the interrogatories but left the policy limits question unanswered. A paralegal at Reed McClure contacted Maryland who refused to disclose the policy limits. When Chaussee was again contacted, he suggested the paralegal contact McDonald. The paralegal did so and was told that the policy limits were $500,000 with umbrella coverage of $2 million. In fact, the umbrella coverage was not in effect when Before the Nodells learned of the mistake, they negotiated a settlement with King County for $1.15 million and demanded the policy limits of $2.5 million from Chaussee. Maryland and Reed McClure then informed the Nodells of the correct policy limits and Maryland agreed to pay $500,000 if the Nodells released Chaussee. The Nodells refused and again demanded that Maryland pay the erroneous policy limits of $2.5 million. When Maryland refused, Chaussee through his private attorney settled with the Nodells. In exchange for a stipulated judgment of $7.5 million with a covenant not to execute, Chaussee assigned his claims against Maryland, Reed McClure, and McDonald to the Nodells. After a hearing on June 28, 1984, a stipulated judgment for $7.5 million was entered against Chaussee. Maryland paid the Nodells the policy limits of $500,000.

                the accident occurred and the policy limits were actually $500,000.   Sometime prior to February 1983, several Maryland employees noted the mistake but did not correct the interrogatory answer
                

The Nodells, as assignees of Chaussee, commenced an action against Maryland asserting claims for negligence, bad faith, misrepresentation, estoppel, fraud, violations of the Consumer Protection Act, breach of implied and express contracts, outrage, and negligent infliction of emotional distress. ² Maryland filed a third party complaint for indemnity against McDonald and Reed McClure. The Nodells then amended their complaint and added McDonald and Reed McClure as additional defendants.

During a 5-week trial witnesses for Maryland and Reed McClure testified regarding their responsibilities and the underlying lawsuit. The Nodells did not present expert testimony on the breach of duty claims or on the reasonableness of the settlement. Neither the consent judgment nor the insurance policy was admitted into evidence. A letter was admitted into evidence which was written by Mr. Wohlford, an attorney with Reed McClure, to the Nodells' attorney stating he had always believed the policy limits were $500,000. When Wohlford testified, however, he denied he knew the interrogatory was incorrect. After the Nodells presented their case, each of the respondents moved for a directed verdict. The trial court denied the motions.

The respondents presented a limited defense. They presented a short section from Dean Chaussee's deposition regarding his knowledge of the policy limits; questioned Chaussee's personal attorney; and then rested. The jury returned a special verdict for the Nodells finding that Chaussee was forced into the settlement with the Nodells as a proximate result of the negligence of the respondents. The trial court granted the respondents' motion for a judgment n.o.v. and dismissed all of the Nodells' claims.

STANDARD OF REVIEW

The issue on appeal is whether the trial court properly granted the judgment n.o.v. The Supreme Court has defined the standard for a judgment n.o.v.:

A motion for a judgment n.o.v. should not be granted unless the court can say, as a matter of law, that there is neither evidence nor reasonable inference therefrom sufficient to sustain the verdict. All evidence must be viewed in the light most favorable to the party against whom the motion is made. There must be "substantial evidence" as distinguished from a "mere scintilla" of evidence, to support the verdict--i.e., evidence of a character "which would convince an unprejudiced, thinking mind of the truth of the fact to which the evidence is directed." A verdict cannot be founded on mere theory or speculation.

(Citations omitted.) Campbell v. ITE Imperial Corp., 107 Wash.2d 807, 817-18, 733 P.2d 969 (1987) (quoting Hojem v. Kelly, 93 Wash.2d 143, 145, 606 P.2d 275 (1980)). The trial court granted the judgment n.o.v. because the Nodells did not introduce sufficient evidence to prove damages, that is, the reasonable settlement value of the underlying claim. The trial court reasoned:

I do not believe there was one word of evidence, direct or circumstantial, regarding the reasonable settlement value of the claim 18 months or so in advance of a possible trial....

. . . . .

... [P]laintiffs saw fit to proceed without any witnesses on this issue and just relied on circumstantial evidence to the extent it could, plus what adverse experts said about the value of the case for purposes of trial, but I really don't think those are interchangeable

. . . . .

The Nodells present two arguments that sufficient evidence supports the judgment. First, they argue that the judicially approved consent judgment for $7.5 million was presumptively reasonable unless the respondents show unreasonableness, bad faith, or collusion. Second, they assert that damages were established because the evidence at trial showed that liability was likely on the underlying claim, and that the consent judgment was within the range of a probable damage award. We agree with the trial court that the Nodells failed to present sufficient evidence on damages to sustain the verdict and affirm the judgment n.o.v.

WHAT CONSTITUTES A REASONABLE SETTLEMENT

The first issue we address is what constitutes a reasonable settlement. Washington case law provides limited guidance in determining whether a consent judgment with a covenant not to execute presents sufficient evidence of a reasonable settlement. The case of Hamilton v. State Farm Ins. Co., 83 Wash.2d 787, 523 P.2d 193 (1974) established that an insurer is liable when it fails to settle a claim within the policy limits if that failure is attributable to either bad faith or negligence. When an insurer refuses to settle a claim, the insured may negotiate a settlement on its own and then seek reimbursement from the insurer. Evans v. Continental Cas. Co., 40 Wash.2d 614, 245 P.2d 470 (1952). However, the insurer is liable only for the amount of the settlement that is reasonable and paid in good faith. Evans, 40 Wash.2d at 628, 245 P.2d 470. Because the parties in Evans stipulatedthat the settlement was reasonable the court did not address the issue directly. No Washington court has defined what constitutes a reasonable settlement in the context of a bad faith failure to settle claim. ³

The Nodells urge this court to agree that unless the respondents can show unreasonableness, bad faith or collusion, the consent judgment is presumptively reasonable citing Steil v. Florida Physicians' Ins. Reciprocal, 448 So.2d 589, 628 (1984). We believe the rule adopted in United Servs. Auto. Ass'n v. Morris, 154 Ariz. 113, 741 P.2d 246 (1987) should apply and hold that the plaintiff has the burden of proof on the issue of the reasonableness of the settlement. In Morris, the court held that a stipulated judgment with a covenant not to execute is not binding on the insurer unless the insured can show that the settlement was reasonable and prudent. Morris, 154 Ariz. at 120-21, 741 P.2d at 253-54. Other jurisdictions have also placed this burden of proof on the insured. See Isaacson v. California Ins. Guar. Ass'n, 44 Cal.3d 775, 750 P.2d 297, 309, 244 Cal.Rptr. 655 (1988) (where insurer has not denied coverage, the insured has the burden to prove that settlement was reasonable); accord Miller v. Shugart, 316 N.W.2d 729 (1982). These courts have reasoned that an insured may settle for an inflated amount to escape exposure and thus call into question the...