Lenzi v. Redland Ins. Co.

Decision Date06 April 2000
Docket NumberNo. 68070-1.,68070-1.
Citation996 P.2d 603,140 Wash.2d 267
CourtWashington Supreme Court
PartiesThomas LENZI and Diane Lenzi, individually and in their marital community, Respondents, v. REDLAND INSURANCE COMPANY, a foreign corporation, Appellant.

Merrick, Hofstedt & Lindsey, Ronald S. Dinning, Seattle, for Appellant.

Roger F. Hawkes, Kevin Winters, Shoreline, for Respondents.


We must decide in this uninsured motorist insurance (UIM) coverage case if an insurance carrier that has notice of its insureds' lawsuit against an uninsured tortfeasor and declines to intervene in that lawsuit is bound by a default judgment obtained against the tortfeasor. Under the facts of this case, we hold the UIM insurer is bound by the default judgment where it had timely notice of the filing of the lawsuit by its insureds and ample opportunity to intervene in the lawsuit to protect its interests, but declined to do so. We affirm the trial court's judgment and award fees on appeal to the Lenzis.


1. Does a UIM insurer receive adequate notice of its insureds' lawsuit against the uninsured tortfeasor when the insureds did not inform the insurer they had served the tortfeasor and moved for default and entry of a default judgment?

2. Is a UIM insurer bound by a default judgment obtained by its insureds against a tortfeasor?

3. Are the Lenzis entitled to attorney fees on appeal?


Thomas Lenzi was injured in August 1995 in an automobile collision. It is now uncontested that the driver of the other vehicle, Joseph Davis, was 100 percent at fault for Lenzi's injuries. Lenzi and his wife had UIM coverage with limits of $500,000 through a policy Redland Insurance Company (Redland) issued to Lenzi's company, Black Pine Enterprises, Inc., d/b/a Black Pine Specialty Auto. The UIM coverage clause of the policy read as follows:

We will pay all sums the "insured" is legally entitled to recover as compensatory damages from the owner or driver of an "underinsured motor vehicle." The damages must result from "bodily injury" or "property damage" sustained by the "insured" caused by an "accident." The owner's or driver's liability for these damages must result from the ownership, maintenance or use of the "underinsured motor vehicle."

Clerk's Papers at 153 (the terms in quotations are defined terms in the policy).

Davis was uninsured at the time of the accident, according to the police report on the accident. He did not carry liability insurance and no other liability coverage applied to the vehicle he was driving. Davis was cited for driving without insurance. He did not take action on the citation, and never paid the $558.00 fine he was assessed.

The Lenzis reported the accident to Redland and sought personal injury protection (PIP) payments under the terms of the policy. Redland neglected to pay the Lenzis for Mr. Lenzi's medical expenses under the terms of the PIP coverage for many months. Redland finally paid the Lenzis the $2,000 maximum PIP coverage to which they were entitled under the policy for Mr. Lenzi's injuries.

The Lenzis retained legal counsel who made a demand on Redland for UIM coverage under the policy by letter dated April 9, 1996. The Lenzis' counsel asked Redland to acknowledge Davis was uninsured. When Redland did not reply, Lenzis' counsel sent a second letter. On May 22, 1996, Redland's insurance adjuster responded, declining to acknowledge Davis was uninsured.

Settlement negotiations with Redland did not progress rapidly. By letter of November 26, 1997, the Lenzis made a formal settlement demand on Redland for $60,000. The Lenzis listed Mr. Lenzi's medical expenses as $2,535.79. Redland countered with an offer to settle of only $5,500, which the Lenzis immediately rejected. The two parties exchanged letters over the next several months dealing with Mr. Lenzi's deposition, medical authorization forms, the possibility of arbitration, and selection of arbitrators, but no further express settlement negotiations occurred. The parties did not agree to commence arbitration. Redland continued to refuse to admit Davis was uninsured, but it appointed an arbitrator on June 2, 1998. The Lenzis never appointed an arbitrator.

On September 29, 1998, the Lenzis sent Redland a letter enclosing the summons and complaint they had filed against Davis on August 17, 1998, prior to expiration of the statute of limitations. The complaint sought damages from Davis for the injuries the Lenzis suffered as a result of the 1995 accident. The summons and complaint the Lenzis sent Redland both contain a date received stamp and a stamped court docket number, indicating the complaint had actually been filed. In the letter, the Lenzis tendered to Redland "any and all rights he has in his lawsuit against Mr. Davis ... for purposes of protecting any subrogation interest [Redland] may have against Mr. Davis in regards to Mr. Lenzi's UIM claim." Clerk's Papers at 209. The letter also noted the Lenzis had not yet served Davis. Redland took no action with respect to Lenzis' suit against Davis, other than to inform the Lenzis by letter dated October 22, 1998, it did not intend to pursue subrogation against Davis. That letter and a subsequent letter continued to refuse to acknowledge Davis was uninsured. Redland did not formally appear in the action or informally request of the Lenzis notice of any further steps they would take to prosecute the case.

Mr. Lenzi's deposition was taken by counsel for Redland on October 29, 1998. Thereafter, on November 4, 1998, counsel for the Lenzis notified Redland the Lenzis had no further interest in mediation or arbitration. The Lenzis withdrew prior settlement demands by a letter dated November 13, 1998.

Without further notification to Redland regarding the lawsuit, the Lenzis served Davis with the summons and complaint on October 28, 1998, and obtained a default judgment against Davis totaling $212,671 on November 23, 1998, representing damages of $162,671 for Mr. Lenzi and $50,000 for Mrs. Lenzi. The trial court entered extensive findings of fact and conclusions of law to accompany the default judgment.

A month after obtaining the default judgment, the Lenzis demanded Redland pay the judgment amount, plus 12% interest from the date of the judgment. Redland refused to consider itself bound by the default judgment, listing the following reasons:

Redlands [sic] was (1) never given notice that the lawsuit had been perfected by service, (2) not given an opportunity to defend the claim on the merits, and (3) never asked by the insured [Lenzi] to participate in the lawsuit as a defendant.... Redlands [sic] will not issue payment to the Lenzis based on the default judgments.

Clerk's Papers at 84. However, Redland did not seek to intervene in the Lenzi-Davis action to set aside the default judgment.

In response to Redland's refusal, the Lenzis filed the present action for declaratory judgment and damages against Redland, alleging breach of contract, bad faith, and Consumer Protection Act (chapter 19.86 RCW) violations. They also claimed attorney fees pursuant to Olympic S.S. Co., Inc. v. Centennial Ins. Co., 117 Wash.2d 37, 811 P.2d 673 (1991). The parties filed cross-motions for summary judgment. Redland's motion sought dismissal of all the Lenzis' claims, or, in the alternative, an order requiring the Lenzis to arbitrate their UIM claim and dismissal of their remaining claims. The Lenzis' motion sought payment of the default judgment amounts pursuant to the UIM coverage, prejudgment interest, costs and attorney fees pursuant to Olympic S.S., actual and treble damages pursuant to the Consumer Protection Act (CPA), and a declaration that they were not required to arbitrate.

The trial court granted the Lenzis' motion for summary judgment on the claims for breach of contract and declaratory relief, binding Redland to the default judgment and declaring the Lenzis did not have to arbitrate their UIM claim and awarded Lenzi fees under Olympic S.S., but denied the motions for summary judgment as to bad faith and the CPA, and dismissed the Lenzis' bad faith and CPA claims. Redland appealed from the judgment. The Lenzis did not seek review of the dismissal of their CPA-bad faith claims. We granted direct review. RAP 4.2(a).

A. Notice Under the Finney-Fisher Rule

Our UIM jurisprudence has clearly indicated an insurer having notice of a lawsuit brought by its insured against the uninsured tortfeasor may be bound by the judgment obtained by the insured. Less than two years ago, we decided Fisher v. Allstate Ins. Co., 136 Wash.2d 240, 961 P.2d 350 (1998). The question in that case was whether a UIM carrier is "bound by the results of an arbitration between its insured and the tortfeasor when the carrier did not participate but had notice and an opportunity to intervene in the action?" Id. at 242, 961 P.2d 350. Fisher was injured in a motorcycle accident, conducted an arbitration against the tortfeasor, and won an award of $236,000. The tortfeasor's insurance policy had a limit of $125,000, so the tortfeasor was underinsured. Fisher had a UIM policy with Allstate containing a $25,000 coverage limit; she demanded Allstate pay her that amount. Allstate refused, contending it could not be bound by the result of the arbitration to which it was not a party and there was, therefore, no UIM coverage.

We rejected Allstate's position. Reaffirming a 20-year-old Court of Appeals case, Finney v. Farmers Ins. Co., 21 Wash.App. 601, 586 P.2d 519 (1978), aff'd, 92 Wash.2d 748, 600 P.2d 1272 (1979), we held a UIM carrier can protect its rights by intervening in an arbitration between its insured and a tortfeasor. Thus, so long as the carrier "has notice and an opportunity to intervene in the underlying action against the tortfeasor," it will be bound by the findings, conclusions, and judgment of the arbitral proceeding. Fisher, 136 Wash.2d at 246, 961 P.2d 350.

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