Hamblin v. Castillo Garcia

• Decision Date: 28 May 2019
• Docket Number: consolidated with No. 78205-3-I,No. 78144-8-I,78144-8-I
• Citation: 441 P.3d 1283
• Court: Washington Court of Appeals
• Parties: Andrew W. HAMBLIN, Respondent-Cross Appellant, v. Luis CASTILLO GARCIA, Respondent, National General Insurance Company, Appellant-Cross Respondent.

441 P.3d 1283

Andrew W. HAMBLIN, Respondent-Cross Appellant,

v. Luis CASTILLO GARCIA, Respondent,National General Insurance Company, Appellant-Cross Respondent.

No. 78144-8-I

consolidated with No. 78205-3-I

Court of Appeals of Washington, Division 1.

FILED: May 28, 2019

Brent William Beecher, Hackett Beecher & Hart, 601 Union St. Ste. 2600, Seattle, WA, 98101-2302, Clifford J. Wilson, Smith Freed Eberhard PC, 111 Sw. 5th Ave. Ste. 4300, Portland, OR, 97204-3639, Thomas James Moore, Lehmbecker Law, 400 108th Ave. Ne. Ste. 500, Bellevue, WA, 98004-5575, Counsel for Respondent

Rick J. Wathen, Cole/Wathen/Leid/Hall, P.C., 303 Battery St., Seattle, WA, 98121-1419, Counsel for Appellant/Cross-Respondent

Andrew James Kinstler, Lauren Parris Watts, Michelle Su, Helsell Fetterman LLP, 1001 4th Ave. Ste. 4200, Seattle, WA, 98154-1154, Counsel for Respondent/Cross-Appellant

Andrew James Kinstler, Lauren Parris Watts, Helsell Fetterman LLP, 1001 4th Ave. Ste. 4200, Seattle, WA, 98154-1154, Rick J. Wathen, Cole/Wathen/Leid/Hall, P.C., 303 Battery St., Seattle, WA, 98121-1419, Counsel for Other Parties

PUBLISHED OPINION

Verellen, J.¶ 1 Generally, insureds may pursue emotional distress damages resulting from their insurer’s bad faith conduct. But if the insured assigns all bad faith claims as part of a covenant judgment settlement agreement with the injured plaintiff, equitable principles do not permit a guaranteed fixed percentage allocation of any global settlement to compensate the insured for their emotional distress. Such a guarantee risks invading the funds reasonably intended to compensate the injured plaintiff. Because Andrew Hamblin’s settlement with insured tortfeasor Luis Castillo Garcia effectively guaranteed Castillo Garcia a minimum 10 percent recovery from any global settlement reached on the bad faith claim he assigned to Hamblin, that portion of the settlement agreement was not reasonable.

¶ 2 When the court entered judgment based on Hamblin’s settlement with Castillo Garcia, it set the postjudgment interest rate at 6.5 percent. Because settlement agreements are contracts, the court should have applied RCW 4.56.110(1) to set the interest at the settlement’s agreed rate of 12 percent.

¶ 3 Therefore, we affirm in part, reverse in part, and remand.

FACTS

¶ 4 On a Saturday morning in early 2016, Luis Castillo Garcia drove with a blood-alcohol level over .18, lost control of his vehicle, and crashed into a car driven by Andrew Hamblin. Hamblin was 19. He was attending community college and working at a grocery store. A physically active and healthy young man, Hamblin’s plan was to study blacksmithing. The accident left Hamblin with bilateral thoracic outlet syndrome, posttraumatic stress disorder, and anxiety. As a result, Hamblin stopped driving, stopped attending community college, and stopped working. He had two surgeries to address the thoracic outlet syndrome, although some symptoms remain unresolved.

¶ 5 Castillo Garcia was insured by National General Insurance Company. Hamblin initially offered to settle with National General for policy limits of $ 100,000, but National General counteroffered $ 21,000. Hamblin refused. After Hamblin filed suit against Castillo Garcia, National General appointed two attorneys to represent him. As Hamblin’s medical expenses and lost earnings increased, his requested settlement amount grew to $ 2 million. Because Castillo Garcia’s attorneys found themselves "in a difficult position," they used a defense attorney list-serve to find an attorney with no relationship to National General to counsel Castillo Garcia.¹

¶ 6 After attorney Brent Beecher began assisting Castillo Garcia in early August of 2017, Hamblin and Castillo Garcia reached a covenant judgment settlement agreement providing that Castillo Garcia stipulate to a $ 1.5 million judgment and assign all claims against National General to Hamblin in exchange for Hamblin agreeing not to enforce an excess judgment "against any of Castillo Garcia’s assets other than his rights against his insurer."² The settlement also requires that any subsequent suit brought by Hamblin against National General on the assigned bad faith claims include a request for damages to compensate Castillo Garcia for emotional distress resulting from the insurer’s alleged bad faith. In addition, Hamblin has the discretion to enter a global settlement with National General, but Castillo Garcia is entitled to 10 percent of the settlement amount if Hamblin agrees to the settlement without Castillo Garcia’s express consent. The parties reached their settlement agreement and notified National General of the agreement’s terms.¶ 7 After receiving notice, National General intervened. A few months later, the court conducted a reasonableness hearing, considered arguments from the parties, and heard live testimony. The court found the settlement was reasonable and entered a covenant judgment against Castillo Garcia with a postjudgment interest rate of 6.5 percent.

¶ 8 National General appeals the finding of reasonableness and entry of judgment. Hamblin appeals only the postjudgment interest rate.

ANALYSIS

¶ 9 Insurers have a duty to act in good faith as fiduciaries of their insured.³ If an insurer acts in bad faith and fails to settle a claim against the insured, the insured may have a bad faith tort claim against his insurer. The insured may assign his bad faith claim to the injured party in exchange for an agreement not to execute on any asset of the insured except the insured’s claims against the insurer.⁴ If the amount of the settlement is reasonable, then entry of a covenant judgment based on the settlement sets the amount of the judgment as the presumptive recovery on the bad faith claim.⁵

¶ 10 We review reasonableness determinations made under RCW 4.22.060 for an abuse of discretion.⁶ A court abuses its discretion where its decision rests on untenable grounds, was made for untenable reasons, or applies an incorrect legal standard.⁷ Reasonableness hearings require factual determinations, which will be disturbed only if unsupported by substantial evidence.⁸ Unchallenged findings of fact are verities on appeal.⁹

I. Whether The Settlement Amount Was Reasonable

¶ 11 A court must consider the nine factors in Chaussee v. Maryland Casualty Company ¹⁰ to determine if a settlement is reasonable:

"(1) [T]he releasing party’s damages; (2) the merits of the releasing party’s liability theory; (3) the merits of the released party’s defense theory; (4) the released party’s relative fault; (5) the risks and expenses of continued litigation; (6) the released party’s ability to pay; (7) any evidence of bad faith, collusion, or fraud; (8) the extent of the releasing party’s investigation and preparation; and (9) the interests of the parties not being released."^{[11 ]}

No single factor controls, and the trial court considers each case individually.¹² The settling parties have the burden to prove the proposed settlement’s reasonableness.¹³ Once proven, the burden shifts to the party arguing the settlement resulted from collusion or fraud.¹⁴

¶ 12 First, National General argues the court erred by not properly addressing four of the nine Chaussee factors. But the court expressly stated it considered all nine factors. The court was not required to explain how it applied each factor.¹⁵ "Absent some showing that an incorrect standard may have been applied, we do not review a trial court’s reasonableness determination for a sufficient explanation, but for substantial evidence."¹⁶ The court’s findings of fact have not been adequately challenged and are verities on appeal.¹⁷ Because National General fails to show the court applied an incorrect legal standard, the court did not abuse its discretion in how it addressed the Chaussee factors.

¶ 13 Second, National General contends the court abused its discretion by considering Castillo Garcia’s intoxication as part of its reasonableness determination because he already admitted liability. The court explained the proposed $ 1.5 million settlement appeared to be a reasonable amount based, in part, "on the evidence before the Court and the Court’s experience" and because "[d]runk drivers are not popular with juries."¹⁸

¶ 14 Evidence is relevant where it has "any tendency" to make the existence of any material fact more or less probable.¹⁹ Even minimally relevant evidence is admissible.²⁰ In this case, Castillo Garcia’s intoxication arguably is related to Hamblin’s theory that he suffers posttraumatic stress disorder regarding drunk drivers. It is also probative of the released party’s ability to pay, one of the Chaussee factors. The bankruptcy code prohibits discharge of any debt resulting from personal injuries caused by the debtor’s drunk driving.²¹ Because the court must consider all nine factors and evidence of intoxication is relevant to the "ability to pay" factor, the court did not abuse its discretion.²²

¶ 15 National General argues, however, Hamblin and Castillo Garcia’s negotiations constitute collusion as a matter of law. National General relies heavily on Water’s Edge Homeowners Association v. Water’s Edge Associates ²³ to argue Hamblin and Castillo Garcia colluded. The Water’s Edge court held a settlement between an insured and an injured plaintiff was unreasonable because the attorneys’ behavior and the resultant settlement amount reflected collusive conduct and bad faith.²⁴ For example, the plaintiff's attorney ghost-wrote a letter for the insured to send to its insurer. The settlement also contained several unusual conditions, such as using damages from the assigned claims to refund the insureds for settlement money they already paid to the plaintiff and making the settlement binding regardless of the court’s reasonableness determination.²⁵ National General fails to show those unusual, collusive circumstances are present here.²⁶ The court did not abuse its discretion by finding the settlement amount reasonable and negotiated...