Liberty Mut. Ins. Co. v. Tripp

• Decision Date: 28 June 2001
• Docket Number: No. 68362-0.,68362-0.
• Court: Washington Supreme Court
• Parties: LIBERTY MUTUAL INSURANCE COMPANY, Petitioner, v. Gordon TRIPP and Jane Doe Tripp, husband and wife, and the marital community comprised thereof, Respondents.

25 P.3d 997

144 Wash.2d 1

LIBERTY MUTUAL INSURANCE COMPANY, Petitioner, v. Gordon TRIPP and Jane Doe Tripp, husband and wife, and the marital community comprised thereof, Respondents.

No. 68362-0.

Supreme Court of Washington, En Banc.

Argued May 23, 2000.

Decided June 28, 2001.

Lane Powell, Spears, Lubersky, Charles C. Huber, Alison Lynn Yearsley, Seattle, for Petitioner.

Alan F. Hall, Edmonds, Maltman, Reed, North, Ahrens & Malnati, Michael T. Schein, Seattle, for Respondents.

Harbaugh & Bloom, Gary Neil Bloom, Debra Leigh Stephens, Bryan Patrick Harnetiaux, Spokane, Amicus Curiae on Behalf of Washington State Trial Lawyers Assoc.

ALEXANDER, C.J.

Gordon Tripp was involved in an automobile accident. He later agreed to accept a payment from the insurer of the person who caused the accident as full settlement of his claim against the tortfeasor. He did not, however, notify his insurer, Liberty Mutual Insurance Company (Liberty), before entering into the settlement agreement as he was required to do by a provision in his insurance contract. Liberty thereafter filed a declaratory judgment action against Tripp and his wife claiming that, because the Tripps did not notify Liberty of the settlement, they waived their right to recover underinsured motorist benefits from Liberty and were obligated to reimburse Liberty for the medical expense benefits they had previously received. In a counterclaim, the Tripps asserted that Liberty had acted in bad faith. Both parties moved for summary judgment, and the trial court granted Liberty's motion. On appeal, the Court of Appeals reversed the trial court's determination that the Tripps were not entitled to underinsured motorist coverage under their insurance policy with Liberty, but affirmed the trial court's ruling that Liberty was entitled to reimbursement for the medical benefits it had paid to the Tripps and that the Tripps' bad faith claim was without merit. It also concluded that the Tripps were entitled to attorney fees proportionally related to the underinsured motorist (UIM) issue. We granted Liberty's petition for review as well as the Tripps' cross-petition for review of the trial court's denial of its motion for summary judgment. We affirm the Court of Appeals in part, agreeing with it that "[t]he UIM aspect of the trial court's ruling" should be reversed, that the trial court properly dismissed the Tripps' bad faith claim, and that remand is necessary to determine the effect, if any, of the Tripps' failure to notify Liberty of the settlement it made with the at-fault driver. Liberty Mut. Ins. Co. v. Tripp, 95 Wash.App. 245, 253, 974 P.2d 899 (1999). We reverse the Court of Appeals in part, concluding that it erred in holding, on the record before it, that the Tripps should reimburse Liberty for medical expenses Liberty paid to the Tripps. We also reverse the Court of Appeals' determination that the Tripps should be awarded attorney fees.

I. FACTS

At all times relevant to this appeal, Gordon and Diane Tripp were insured by Liberty. The Tripps' policy included a UIM endorsement, under which Liberty agreed to compensate the Tripps for up to $100,000 of "compensatory damages which [the Tripps were] legally entitled to recover from the owner or operator of an `underinsured motor vehicle' because of: `bodily injury' sustained by [the Tripps] and caused by an accident." Clerk's Papers (CP) at 94. The policy also provided for personal injury protection (PIP), under which Liberty agreed to pay certain medical benefits to the Tripps in the event they were injured in an automobile accident. The PIP endorsement provided, additionally, that Liberty would have a right of reimbursement from any judgment or settlement the Tripps received from a tortfeasor to the extent of the PIP benefits it had paid to the Tripps. Finally, the policy provided that Liberty was subrogated to the Tripps' rights to collect damages from a tortfeasor to the extent of the PIP benefits it had paid, and that the Tripps would do nothing to prejudice Liberty's rights to obtain recovery from the tortfeasor.

In April 1993, Gordon Tripp was involved in an automobile accident. Liberty Mutual paid Tripp $4,599.12 in PIP benefits. Ultimately, the Tripps filed a suit for damages in Snohomish County Superior Court against Lowell Allison, the individual who allegedly caused the accident. The Tripps' attorney notified Liberty of the commencement of the suit against Allison. Liberty responded to the notification as follows: "We represent ourselves in this recovery, and do not require any other representation." CP at 41. On October 6, 1994, the Tripps' attorney wrote to Liberty, stating that he expected Allison's insurance carrier to "tender policy limits" of $50,000. CP at 43. He also stated that he was "forwarding to [Liberty] copies of all medical records and bills to give [Liberty] the opportunity to buy [the Tripps'] claim pursuant to Hamilton." CP at 43. Finally, he noted that "[t]he draft settlement will name [Liberty] as a lien holder," and that he expected Liberty "to waive their subrogated interest" in the event the parties settled. CP at 43.

The Tripps' attorney thereafter sought arbitration of the Tripps' UIM claim against Liberty. Although Liberty did engage in some discovery, arbitration was postponed to allow the action against Allison to proceed. The Tripps' attorney agreed to keep Liberty "appraised of developments" regarding the litigation against Allison. CP at 50. The attorney then requested mediation of the UIM claim along with the claim against Allison. Liberty indicated that it would not agree to mediate the Tripps' UIM claim against it prior to a resolution of the Tripps' suit against Allison. The Tripps and Allison were unable to settle the lawsuit and the case was scheduled for trial on October 14, 1996.

On the first day of trial, "as they were walking into the courtroom," the Tripps and Allison agreed to settle the lawsuit for a $35,000 payment from Allison's insurer, Allstate Insurance Company. Suppl. Br. of Gordon and Diane Tripp at 5-6. A few days later, without advising Liberty of the settlement, the Tripps signed a document agreeing to "release and forever discharge" Allison and Allstate and expressly agreeing to hold them harmless against all claims, "including the subrogated claim of any person or company." CP at 68-69. Five days after the Tripps signed the release, Allison's counsel contacted counsel for Liberty to request that Liberty waive its claim for PIP reimbursement. Only then did Liberty learn that the Tripps and Allison had agreed to a settlement with Allison. Liberty refused to release its claim for PIP reimbursement. Two days after the conversation between Allison's counsel and Liberty's counsel, the Tripps' counsel forwarded to Liberty's counsel a copy of the "Release and Settlement" and a copy of a proposed "Stipulation and Order of Dismissal." CP at 65. The order of dismissal was entered in January 1997.

Liberty then filed a complaint against the Tripps in Snohomish County Superior Court for a "Declaration of Injunctive Relief and Damages." CP at 124. Asserting that the Tripps destroyed its "UIM subrogation rights" and failed to protect its PIP claim, Liberty sought damages in the amount of the PIP payments that it had made, a declaration that the Tripps had waived any right to claim any UIM benefits, and an injunction prohibiting the Tripps from claiming such benefits. In their answer, the Tripps denied that they failed to give Liberty notice of their settlement with Allison on the day the settlement was reached. They also asserted nine affirmative defenses and contended in a counterclaim that Liberty had acted in bad faith.

Liberty moved for summary judgment, contending that the Tripps waived their right to UIM benefits because they did not notify Liberty of the settlement they reached with Allison and, in addition, were obligated to reimburse it for the PIP benefits it had paid them because the Tripps released Liberty's subrogation claim against the tortfeasor. The Tripps responded with their own summary judgment motion, contending that Liberty's claims were unfounded, that Liberty acted in bad faith, and that the Tripps were entitled to an award of attorney fees. The Superior Court entered summary judgment in favor of Liberty, granting it all of the relief it requested. The Tripps appealed to Division One of the Court of Appeals, contending that the Superior Court erred in granting Liberty's motion for summary judgment and in denying their counter-motion for summary judgment.¹

The Court of Appeals affirmed the Superior Court on the PIP reimbursement issue but reversed it on the UIM issue. In regard to the latter issue, it held that although the Tripps "compromised Liberty Mutual's potential right of reimbursement for at least an additional $15,000 and possibly more if the tortfeasor had reachable assets beyond policy limits," the extent of Liberty's damages could not be ascertained from the record before it. Liberty Mut.,95 Wash.App. at 253,974 P.2d 899. It, therefore, remanded the case for UIM arbitration, at which the Tripps will be entitled to recover their damages established at arbitration, to the extent the damages exceed the offset available to Liberty Mutual. The amount of that offset would ordinarily equal the liability policy limits of the tortfeasor, but here must be increased by $15,000 due to the Tripps' failure to give proper and timely notice to Liberty Mutual.

Liberty Mut., 95 Wash.App. at 253, 974 P.2d 899 (footnote omitted). In addition, it awarded the Tripps reasonable attorney fees and costs on appeal, proportionate to the UIM issue. Liberty Mut., 95 Wash.App. at 253, 974 P.2d 899 (citing Olympic S.S. Co. v. Centennial Ins. Co., 117 Wash.2d 37, 51-53, 811 P.2d 673 (1991)). The Court of Appeals also concluded that the Tripps' bad faith argument was without merit. Liberty Mut., 95 Wash.App. at 250, 974 P.2d 899.

Liberty...