Ellwein v. Hartford Acc. and Indem. Co.

• Citation: 142 Wash.2d 766,15 P.3d 640
• Decision Date: 11 January 2001
• Docket Number: No. 68230-5.,68230-5.
• Court: United States State Supreme Court of Washington
• Parties: Nancy ELLWEIN and Tom Ellwein, Petitioners, v. HARTFORD ACCIDENT AND INDEMNITY COMPANY, a Connecticut corporation d/b/a/ The Hartford, the insurance people of ITT, Respondent.

15 P.3d 640

142 Wash.2d 766

Nancy ELLWEIN and Tom Ellwein, Petitioners, v. HARTFORD ACCIDENT AND INDEMNITY COMPANY, a Connecticut corporation d/b/a/ The Hartford, the insurance people of ITT, Respondent.

No. 68230-5.

Supreme Court of Washington, En Banc.

Argued May 9, 2000.

Decided January 11, 2001.

As Amended January 18, 2001.

Reconsideration Denied March 7, 2001.

Philip G. Arnold, Osborn Law Firm, Simeon Osborn, Susan Machler, Seattle, for Petitioner.

Ogden, Murphy & Wallace, Christopher A. Washington, Geoffrey J. Bridgman, Seattle, for Respondent.

Debra Stephens, Bryan Patrick Harnetiaux, Spokane, Amicus Curiae on Behalf of Washington State Trial Lawyers Association.

IRELAND, J.

Petitioners Nancy and Tom Ellwein seek review of the summary judgment dismissal of their claims of bad faith against Respondent Hartford Accident and Indemnity Company. At issue is whether Hartford acted in bad faith when handling the Ellweins' underinsured motorist claim. We hold that, with respect to Hartford's misappropriation of the Ellweins' accident reconstruction expert, Hartford did act in bad faith.

I. Facts

On November 28, 1989, Nancy Ellwein was driving to a work meeting when she was severely injured in an automobile accident.¹ Mrs. Ellwein was turning left in an intersection controlled by traffic lights when her car was hit by an oncoming vehicle driven by Jason Gleason. In addition to Mrs. Ellwein and Gleason, there were two other eyewitnesses, Larry Schultz and Kenneth MacDougall, who were driving vehicles near the intersection. MacDougall's vehicle suffered minor damage as a result of the accident.

Following the accident, three insurance companies became involved Respondent Hartford on behalf of Mrs. Ellwein; Allstate Insurance on behalf of Gleason; and Safeco Insurance on behalf of MacDougall. Shortly after the accident, both Allstate and Safeco brought subrogation claims against Hartford. In response to these claims, Gordon Woodley, an attorney Mrs. Ellwein and her husband hired to assert liability claims against Gleason, wrote to Hartford requesting that it not jeopardize the Ellweins' potential claims against Gleason by conceding comparative fault in resolving the property damage subrogation claims.

In December 1989, as part of its investigation of the accident, Hartford hired accident reconstruction expert William Cooper. Hartford provided Cooper with statements it had taken from eyewitnesses Schultz and MacDougall near the time of the accident. In these statements, both Schultz and MacDougall asserted that Mrs. Ellwein began her turn while the traffic light remained yellow and that Gleason struck Mrs. Ellwein's vehicle in the intersection when the traffic light was red.² MacDougall further asserted that when Ellwein started into the intersection, Gleason was far enough away from the light that he assumed Gleason would stop. Neither MacDougall nor Schultz, however, asserted that Gleason appeared to be speeding.

In August 1990, Cooper submitted his report. Based on the statements of Schultz and MacDougall, and his own independent calculations, Cooper determined that: (1) Gleason's estimated speed was approximately 63 miles per hour (m.p.h.), above the 45 m.p.h. speed limit for that area; and (2) while Gleason was "there to be seen" by Mrs. Ellwein, Gleason likely ran the red light when he hit Mrs. Ellwein's car.

On January 7, 1991, stating its opinion was based on Cooper's report, and noting Woodley's request to refrain from admitting liability, Hartford wrote Safeco asserting that Mrs. Ellwein was not at fault regarding the accident. Internally, however, Hartford was preparing to defend itself from a "potentially large" uninsured motorist claim by the Ellweins. Clerk's Papers (CP) at 139. In an interoffice memorandum dated April 4, 1991, without notice to the Ellweins, Hartford outlined a plan to help fully understand its potential "exposures." CP at 141. Part of this plan involved Hartford conducting an independent investigation of the accident scene. The memorandum also noted that, although Cooper had "not proved entirely beneficial" as a court witness on other claims, his report could still be used to support Hartford's claim of comparative negligence by Mrs. Ellwein. In this memorandum, Mrs. Ellwein's comparative negligence was estimated to be 50 percent. See CP at 139-42.

In August 1991, Woodley wrote to Hartford notifying it of a settlement between the Ellweins and Allstate for Gleason's policy limits of $100,000, and made an Underinsured Motorist (UIM) policy limit demand.³ Woodley asserts that Hartford misled him by stating that the UIM policy limits were only $100,000.⁴ The context of this miscommunication, however, is unclear because Woodley failed to provide any further details. Nevertheless, on September 12, 1991, Hartford wrote a letter to the Ellweins clarifying that their policy limit was $1,000,000.⁵

By November 1991, however, public signs of Hartford's comparative fault defense to the uninsured motorist claim began to emerge. In response to the Ellweins' UIM arbitration demand, Hartford's attorneys wrote a letter to Woodley in which they implied that Cooper was Hartford's witness and that Cooper's conclusions might change as additional evidence was developed. Hartford proceeded by providing Cooper with the following information: (1) the investigating police officer's supplemental accident report; (2) McDougall's statement dated January 12, 1990; (3) Schultz's statement dated December 11, 1989; (4) Gleason's statement dated January 8, 1989; (5) MacDougall's transcribed statement dated November 29, 1989; (6) Gleason's transcribed statement dated November 29, 1989; (7) Schultz's declaration dated August 5, 1992; and (8) McDougall's declaration dated September 22, 1992.⁶

Much of this "new" information implicated Mrs. Ellwein as the cause of the accident. For example, both McDougall's and Schultz's versions of events changed. MacDougall opined that Mrs. Ellwein took no evasive action, and that Gleason may have entered the intersection when the light was yellow. Furthermore, Schultz now accused Mrs. Ellwein of "attempting to beat the light."

On October 7, 1992, as predicted, Cooper gave a sworn declaration in which he revised his initial findings and conclusions. Specifically, Cooper stated that: (1) Gleason entered the intersection on a yellow light, not a red light as previously reported; (2) Gleason's speed was irrelevant because he was there to be seen; (3) Gleason had no reason to believe Mrs. Ellwein would turn in front of him due to the road design; and, thus, (4) the accident was solely caused by Mrs. Ellwein's failure to yield.

On October 8, Hartford brought a motion to dismiss before the arbitrators in which it asserted that Mrs. Ellwein was solely to blame. The Ellweins responded by hiring accident reconstruction expert John Hunter. After reviewing the evidence, Hunter provided a declaration consistent with Cooper's original report. Based on Hunter's report, the arbitrators denied the motion. In a memorandum dated October 15, a Hartford employee in the Seattle office stated:

[Having] been able to get their reconstruction expert to reevaluate his position[,] we now feel there is a comparative negligence issue involved in this case in which it appears that the insured may be at fault. We have confirmed that both parties had a yellow light at the time of the accident. Our insured would then be at fault for failing to yield the right of way by making a left hand turn in front of the claimant. The injuries are still quite substantial as verified by our independent medical examination. Our defense counsel has evaluated the case in the area of $600,000—$700,000. We feel that this has been cut down by at least 50% based upon comparative negligence which would put the loss below our reserve.

CP at 165.

On November 13, Hartford offered the Ellweins $300,000 to settle their UIM claim. Hartford's offer was based on its assessment that the Ellweins' gross damages equaled $800,000, discounted by 50 percent for Mrs. Ellwein's contributory negligence and $100,000 for the amount received from the Gleason settlement. The Ellweins did not accept, and prior to the arbitrator's decision, Hartford raised its offer to $400,000. Again, the Ellweins did not accept. On November 17, the arbitrator ruled that Gleason was solely at fault, and awarded the Ellweins gross damages of $929,803.39.

Following the arbitration award, the Ellweins brought suit against Hartford in federal court for bad faith and Consumer Protection Act (Chapter 19.86 RCW) violations for the handling of their UIM claim. The Ellweins voluntarily dismissed their federal suit and refiled in state court over a year later. CP at 351.

In the interim, Hartford's home office senior supervisor, William Solito, destroyed the home office file on the Ellweins' claim. Solito explained that it was company policy to destroy the home office file when a claim is closed, and the only items not still available in the field office file were his notes regarding discussions he had with his superiors regarding the Ellweins' claim. Solito, however, admitted that he understood there "was a chance, not a likelihood[ ]" the case would be re-filed. CP at 351.

In total, two trials were scheduled for the Ellweins' bad faith action. In the first trial, held in August 1995, the Ellweins asserted that Hartford acted in bad faith by: (1) forcing the Ellweins into arbitration to recover insurance benefits; (2) failing to make a reasonable settlement offer; and (3) bringing a summary judgment motion before the arbitrators without reasonable justification.

During this trial, attorney Dwayne Richards testified as an expert witness on the Ellweins' behalf. Richards stated that, in his opinion, Hartford treated the Ellweins unfairly in handling their claim-putting its financial interests before those of its insured. Richards further testified that Hartford...