Miller v. Kenny

• Decision Date: 06 December 2010
• Docket Number: 64003-8-I
• Court: Washington Court of Appeals
• Parties: RYAN E. MILLER, individually, Respondent, v. PATRICK J. KENNY, individually, Defendant, and SAFECO INSURANCE COMPANY, Appellant.

RYAN E. MILLER, individually, Respondent, v. PATRICK J. KENNY, individually, Defendant, and SAFECO INSURANCE COMPANY, Appellant.

No. 64003-8-I

Court of Appeals of Washington, Division 1

December 6, 2010

UNPUBLISHED OPINION

Lau J.

While driving a Safeco-insured vehicle, Patrick Kenny rear-ended a truck. His three passengers, including Ryan Miller, sued Kenny for injuries and damages caused by the accident. The parties subsequently executed a settlement agreement that included assignment and reservation provisions. Miller and Safeco dispute the meaning of these provisions. Safeco appeals the order denying summary judgment dismissal of the assigned claims asserted against it by Miller as Kenny's assignee. Because these provisions are susceptible to two reasonable but competing meanings and the parties' intent is a fact question, we affirm the order denying summary judgment dismissal.

FACTS

On August 23, 2000, Patrick Kenny rear-ended a truck in Alberta Canada. The collision severely injured his three passengers-Ryan Miller, Ashley Bethards, and Cassandra Peterson. Kenny was driving Peterson's parents' car with their permission and was therefore insured under the Petersons' Safeco policy. Kenny admitted responsibility for the accident and the injuries and damages sustained by the passengers.

Eventually all three passengers filed separate lawsuits against Kenny. Safeco provided a defense and indemnified Kenny without a reservation of rights. In 2002, the plaintiffs made settlement demands against Kenny that exceeded the amount available under both the automobile liability and personal liability umbrella policies. In May 2003, Miller, Bethards and Peterson entered into a settlement agreement with Kenny in which Kenny agreed to (1) pay through his insurers $1.8 million under the combined insurance coverage limits ^[1] (2) entry of a reasonable judgment approved by the court and covenant not to execute (covenant judgment), ^[2] and (3) assignment of "all rights, privileges, claims and causes of action that he may have against his insurers or affiliated companies." The agreement provides in part,

b. Assignment: In further consideration, defendant Patrick Kenny agrees to cooperate and assign to Plaintiffs all rights, privileges, claims and causes of action that they may have against his insurers or affiliated companies, and their agents. This assignment includes, but is not limited to, all of Mr. Kenny's privileges, and claims or causes of action arising out of the insurance contract, obligations or otherwise, as well as claims or actions for insurance protection, claims handling, investigation, evaluation negotiation, settlement, defense, indemnification, along with any claims for breach of contract, negligence, fiduciary breach, Consumer Protection Act, bad faith, punitive damages and/or otherwise.

c. Reservation: Defendant Kenny hereby reserves to himself claims for damages for his personal emotional distress, personal attorneys' fees, personal damages to his credit or reputation and other non-economic damages which arise from the assigned causes of action.

d. Cooperation and Pursuit of Remaining Claims: In further consideration, defendant Kenny agrees to cooperate with pursuit of any claims for legal negligence if requested as a result of any allegations of same by Safeco or State Farm as well as any claims for punitive damages or any of the other above claims which at any time may or may not be assignable. Defendant Kenny agrees not to settle said claims without the consent of the parties hereto and to hold in trust any proceeds or judgment for later execution or assignment to the Plaintiffs except as to damages reserved in paragraph C above. If this paragraph or any part thereof is determined to be unenforceable, the remaining provisions of this agreement shall remain in full force and effect.

Settlement agreement and assignment of rights, judgment and covenant at 4.

On October 28, 2004, Safeco moved to intervene for the limited purpose of determining the reasonable covenant judgment amount. On May 12, 2005, the settling parties and intervenor Safeco agreed to entry of a stipulated order setting out a "reasonable covenant judgment" for each claimant.^[3]

Claimant

Gross Amount

Net Amount

Miller

$3, 450, 000

$2, 575, 000

Bethards

$2, 100, 000

$1, 425, 000

Peterson

$400, 000

$150, 000

Safeco's counsel signed the stipulated order, and Miller's counsel signed it as "Attorneys for Miller and Assignees of Kenny, Bethards, and Petersons claims." In accordance with the settlement agreement, the insurance proceeds were paid and no judgment was entered against Kenny.

Then, on June 10, Miller amended his complaint to assert, as Kenny's assignee, ^[4] causes of action against intervenor Safeco for negligence, bad faith, ^[5] Consumer Protection Act (CPA) violations, breach of contract, breach of fiduciary duty, and breach of regulatory/statutory violations.^[6] In April 2006, Miller filed a second amended complaint and cross claims against Safeco.^[7] Kenny remained a named defendant in the first and second amended complaints, which sought an "an award of all economic, noneconomic, compensatory and exemplary damages" resulting from Safeco's conduct. ^[8]

On December 22, 2008, Safeco moved for summary judgment dismissal of Miller's bad faith^[9] claim, arguing the assignment and reservation provisions reserved in Kenny the essential harm element of a bad faith claim. Safeco specifically asserted, "An assignee is not entitled to a presumption of harm from a covenant judgment where the assignor retained the predicate claims for harm, i.e., claims for 'personal emotional distress, personal attorney's fees, personal damages to his credit or reputation [or] other noneconomic damages.' " (quoting Settlement Agreement). In essence, Safeco claimed that as a matter of law, Miller could not establish an essential element of his bad faith claim-harm.

After the January 30, 2009 summary judgment hearing, the trial court denied the motion. Safeco then moved the trial court to certify the question for discretionary review under RAP 2.3(b)(4), arguing that the reservation of harm issue involved a controlling issue of law and "reversal of this motion for summary judgment would result in dismissal of Miller's claims predicated on Kenny's assignment." Miller opposed certification, pointing to Safeco's pleading deficiencies, dilatory conduct, waiver, alternative relief under CR 17(a), and finally, appealability questions. Nevertheless, the trial court certified the matter for discretionary review under RAP 2.3(b)(4). The certification order provides in part,

1. The Order Re: Motion for Summary Judgment on Harm/Damages involves a controlling issue of law as to which there is substantial ground for a difference of opinion. Neither party was able to locate persuasive Washington authority on the issue of whether a partial assignment of a claim against an insurer that includes a covenant judgment but excludes all harm that could arise as a result of the insurer's alleged wrongful acts is legally sufficient. The question is therefore one of first impression requiring resolution by the Court of Appeals.

2. Immediate review of the order and resolution of this issue will materially advance the ultimate termination of one of the causes of action.

A commissioner of this court granted discretionary review, and a panel of this court denied Miller's subsequent motion to modify the commissioner's ruling.

ANALYSIS

Standard of Review

When reviewing a summary judgment order, an appellate court engages in the same inquiry as the trial court, viewing the facts and all reasonable inferences in the light most favorable to the nonmoving party. Jones v. Allstate Ins Co., 146 Wn.2d 291, 300, 45 P.3d 1068 (2002). Summary judgment is appropriate only where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. CR 56(c); Jones, 146 Wn.2d at 300–01. "A material fact is one upon which the outcome of the litigation depends in whole or in part." Atherton Condo. Apt.-Owners Ass'n Bd. of Dirs. v. Blume Dev. Co., 115 Wn.2d 506, 516, 799 P.2d 250 (1990) (citing Morris v. McNicol, 83 Wn.2d 491, 494, 519, P.2d 7 (1974)).

Butler and the Presumption of Harm

Safeco first argues Miller cannot, as a matter of law, establish his bad faith claim because the assignment reserved in Kenny an essential element of that claim-actual harm. Miller counters that personal noneconomic damages are not the only measure of harm from a covenant judgment^[10] and, regardless, the terms of the assignment here did not reserve those claims.^[11]

Insurers have a duty of good faith to their policyholders. Smith v. Safeco Ins. Co., 150 Wn.2d 478, 484, 78 P.3d 1274 (2003). "To succeed on a bad faith claim, the policyholder must show the insurer's breach of the insurance contract was 'unreasonable, frivolous, or unfounded.'" Smith, 150 Wn.2d at 484 (quoting Overton v. Consol. Ins. Co., 145 Wn.2d 417 433, 38 P.3d 322 (2002)). In addition, the policyholder must establish "'the same principles as any other tort duty, breach of that duty, and damages proximately caused by any breach of duty.'" Mut. of Enumclaw Ins. Co. v. Dan Paulson Constr., Inc., 161 Wn.2d 903, 916, 169 P.3d 1 (2007) (quoting Smith, 150 Wn.2d at 485.) While "harm is an essential element of an action for bad faith handling of an insurance claim, " a rebuttable presumption of harm arises once the insured meets the burden of establishing bad faith. Butler, 118 Wn.2d at 389–90. The presumption of harm relieves the insured of the "'almost impossible burden of proving that he or she is demonstrably worse off because of [the insurer's actions]'" Butler, 118 Wn.2d at 390 (quoting Allan D....