Miller v. Kenny

• Citation: 325 P.3d 278,180 Wash.App. 772
• Decision Date: 28 April 2014
• Docket Number: No. 68594–5–I.,68594–5–I.
• Court: Court of Appeals of Washington
• Parties: Ryan E. MILLER, individually, Respondent/Cross–Appellant, v. Patrick J. KENNY, individually, Defendant, and Safeco Insurance Company, Appellant/Cross–Respondent.

180 Wash.App. 772

325 P.3d 278

Ryan E. MILLER, individually, Respondent/Cross–Appellant,

v. Patrick J. KENNY, individually, Defendant,andSafeco Insurance Company, Appellant/Cross–Respondent.

No. 68594–5–I.

Court of Appeals of Washington, Division 1.

April 28, 2014.

Philip Albert Talmadge, Talmadge/Fitzpatrick, Tukwila, WA, Timothy James Parker, Emilia L. Sweeney, Jason Wayne Anderson, Carney Badley Spellman, Seattle, WA, Randy Alan Perry, Attorney at Law, Tacoma, WA, for Appellant(s).

David Merritt Beninger, Deborah Lee Martin, The Luvera Law Firm, Seattle, WA, Howard Mark Goodfriend, Smith Goodfriend PS, Seattle, WA, for Respondent(s).

BECKER, J.

¶ 1 In an insurance bad faith case, the amount of a reasonable covenant judgment sets a floor, not a ceiling, on the damages a jury may award. We affirm a jury verdict awarding $13 million in damages to the assignee of the bad faith causes of action where the total net amount of the covenant judgment was $4.15 million.

¶ 2 This appeal arose out of an automobile accident on August 23, 2000. Patrick Kenny, the driver at fault, was driving a 1994 Volkswagen Passat in Alberta, Canada, when he rear-ended a cement truck. The accident injured his three passengers: Ryan Miller, Ashley Bethards, and Cassandra Peterson. The four teenagers were close friends who had attended Anacortes High School and were taking a road trip before starting college at the University of Washington.

¶ 3 The Passat belonged to Cassandra Peterson. Kenny had permission to drive it and was covered for liability under the car insurance policy issued to Peterson's parents by appellant Safeco Insurance Company. Within days of the accident, Safeco had information that the injuries were severe. Safeco defended Kenny without a reservation of rights.

¶ 4 Miller, who had experienced a head injury and was unable to start college as planned, eventually retained counsel. As a preliminary to initiating settlement discussions, Miller contacted Safeco in October 2001 to inquire about the policy limits. Safeco did not divulge the policy limits, claiming that the Petersons had not given their permission—a point that would later be disputed at trial. Miller forced the issue by filing suit against Kenny on December 20, 2001. This made the policy limits discoverable.

¶ 5 In January 2002, Safeco disclosed that the Petersons had liability policy limits of $500,000 per person and per accident, and umbrella policy limits of $1 million. The policy also had underinsured motorist (UIM) coverage that was potentially available to the injured passengers. Safeco represented that the limits of the UIM coverage were only $100,000 due to an alleged prior rejection by Peterson's mother of UIM limits of $500,000.

¶ 6 On July 1, 2002, Miller sent Safeco a letter demanding a policy limits settlement. The letter called attention to the “substantial” risk of an excess judgment.¹ Peterson had already sent Safeco a settlement demand for $350,000. Shortly thereafter, Safeco received a demand of $1.25 million from Bethards, who had suffered a head injury.

¶ 7 On August 29, 2002, Kenny's appointed defense counsel Vickie Norris wrote to the Safeco adjuster, pointing out that the cumulative settlement demands exceeded the policy limits. On behalf of Kenny, Norris demanded that Safeco tender the policy limits into the registry of the court in exchange for a release and hold harmless from the claimants.²

¶ 8 Safeco's adjuster responded by letter saying that with the information received so far, “we do not see the combined value of the injuries in excess of the policy limits.” ³ The adjuster tendered to Norris only the $500,000 in liability limits.

¶ 9 On November 8, 2002, Norris wrote to the three claimants on behalf of Kenny, tendering to them the $500,000 she had received from Safeco pending agreement by the claimants on how to divide it. She offered that Kenny would assign “any bad faith claims that he may have against Safeco” in exchange for the claimants' agreement not to execute or enforce above all available policy limits.⁴

¶ 10 The trial date for Miller's suit against Kenny was set for June 2003. In March 2003, Safeco authorized Norris to tender the umbrella policy limits of $1 million, to be added to the $500,000 in liability limits, in exchange for a release of all claims against their insureds.⁵ This offer came too late. Kenny was facing the likelihood of an excess judgment at the upcoming trial. Kenny acted upon advice from Norris and retained attorney Jan Peterson to attempt to negotiatea global settlement with the three passengers.

¶ 11 The settlement agreement was achieved in May 2003.⁶ Kenny had $1.8 million of insurance proceeds available ($300,000 from his parents' State Farm policy in addition to the $1.5 million from the Petersons' Safeco policy). Kenny agreed to pay the $1.8 million to Miller, Bethards, and Peterson, through the mechanism of a partial judgment if necessary, and to assign to Miller his rights to sue Safeco for bad faith and related claims or actions. In return, the three claimants granted Kenny a covenant not to execute on or enforce any excess judgment. It was agreed that the full amount of damages for the covenant judgment would be determined by stipulation or arbitration, contingent upon a reasonableness finding by the court.

¶ 12 Safeco intervened after being notified of the settlement agreement. A reasonableness hearing became unnecessary when Safeco, in May 2005, stipulated to an order finding that $4.15 million was the reasonable total net amount for the stipulated covenant judgments.⁷ This was the amount of damages that remained unpaid after the three passengers received the $1.8 million in insurance proceeds. All parties to the stipulated order agreed to treat the remaining $4.15 million as if judgment in that amount had been entered against Kenny. The order allocated the damages as follows:

¶ 13 Safeco's stipulation reserved its defenses in future litigation. Thus, the stage was set for bad faith litigation. Miller dropped his claims against Kenny. As Kenny's assignee, he amended his complaint to allege bad faith against Safeco, as well as negligence, consumer protection violations, breach of contract, and other theories. Miller alleged that Safeco had damaged Kenny by refusing to disclose the liability policy limits, thereby forcing the initiation of Miller's lawsuit against Kenny, and by its subsequent actions in handling the case. Miller also sued as the assignee of Cassandra Peterson's claim that Safeco committed bad faith when it represented that her parents' policy provided only $100,000 in UIM coverage for the Passat instead of $500,000.

¶ 14 Years of litigation followed. Miller's major theme was that Safeco could have protected Kenny from exposure to an excess judgment by promoting a policy limits settlement much earlier. Safeco's principal defense was that it never had a genuine opportunity to settle the case because there were three claimants, and Miller unreasonably and intransigently demanded all the policy limits for himself. This dispute about who was to blame for the lack of settlement continued to the last witness on the last day of trial, a Safeco adjuster whose deposition was presented in Miller's rebuttal case. The adjuster admitted that Safeco's failure to offer $1.5 million in August 2002 was not due to the position taken by the lawyers, but rather was due to Safeco's assessment at the time that the three claims did not approach $1.5 million in value.

¶ 15 Safeco erected a secondary line of defense upon the terms of the settlement agreement. Safeco argued that Kenny had failed to make a valid assignment of his right to sue Safeco for bad faith. In the 2003 agreement with his passengers, Kenny assigned to Miller “all rights, privileges, claims and causes of action that he may have” against Safeco. At the same time, Kenny reserved to himself certain “claims for damages.”

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.[ ⁹]

Safeco argued that because of Kenny's reservation of his “claims” for personal damages, Miller as Kenny's assignee could not prove harm, an essential element in a bad faith case. On December 22, 2008, Safeco moved for dismissal on summary judgment on this basis.

¶ 16 The trial court denied the motion for summary judgment. This court took discretionary review and decided that summary judgment was properly denied because what Miller and Kenny intended by the assignment and reservation provisions of the agreement depended on the resolution of disputed extrinsic evidence. Miller v. Kenny, noted at 158 Wash.App. 1049, 2010 WL 4923873, at *7.

¶ 17 When the case returned to superior court, Safeco moved to bifurcate the trial. The trial court granted the motion. The jury would proceed to decide Safeco's liability for bad faith only if the jury determined in the first phase that the May 2003 settlement agreement was intended to permit Miller to recover Kenny's damages caused by Safeco's alleged bad faith.

¶ 18 The first phase of trial began November 30, 2011. It was concerned solely with contract interpretation. Safeco's factual position was that the agreement reserved to Kenny the right to pursue damages. Safeco's legal theory was that if the jury found Kenny retained that right for himself, then the assignment was invalid because it was incomplete. Miller's position was that the agreement retained for Kenny only an interest in any damages Miller recovered and that Miller alone had the right to pursue Kenny's damages in a lawsuit against Safeco.

¶ 19 The question posed to the jury was “Who gets to pursue Kenny's claims for personal emotional distress, attorneys' fees, personal damage to credit and reputation, and other non-economic...