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Washington Insurance Commissioner Discusses Proposed Restitution Bill

In November, several new faces were elected to various positions within the Washington State government. This includes Patty Kuderer, who defeated Phil Fortunato to become Washington’s new Insurance Commissioner.

Recently, an AM Best report revealed some of the areas in which the newly elected Kuderer wants to implement reforms within Washington’s complex insurance code. House Bill 1199, which Kuderer is backing, would affect how the State regulates insurance code violations. The current system mandates that fines imposed by the Commissioner are directed to a general fund operated by the State. However, Kuderer argues that the current system does not provide restitution to affected consumers. Instead, the new bill would allow the Commissioner to directly order the payment of restitution to affected consumers.

While industry groups have expressed concerns about these measures, arguing that regulators can already negotiate penalties exceeding the current $10,000 limit, Kuderer believes per-violation fines are necessary to ensure accountability on the part of insurers. In supporting the bill, Kuderer looked to 40 other states that have passed similar regulations.

Another change would be to the system in which complaints are addressed by the Commissioner. Kuderer has requested a $470,000 budget increase to establish a claims review team consisting of three full-time employees focused on dispute resolution between claimants and their insurers.

In addition to resolving issues of restitution, Kuderer also wishes to address underwriting practices that may disproportionately affect policyholders based on race, gender, income, or national origin.

HB 1199 had its first public hearing in the House Committee on Consumer Protection & Business on January 24.

Lether Law Group actively tracks proposed changes to State laws across multiple jurisdictions to keep our clients fully apprised of any new developments. If you have questions about the implications of Washington’s upcoming legislative session or general questions in regard to compliance with Washington insurance law, please feel free to contact our office.

Washington Court Reaffirms Insurers’ Right to Participate in Reasonableness Hearings

On October 28, 2024, the Washington State Court of Appeals considered the validity of a reasonableness determination obtained without proper notice to the liability insurer, and held that without proper notice, the liability insurer is not bound to the reasonableness determination. This ruling further solidified the procedures set forth allowing liability insurers the opportunity to participate in reasonableness hearings in Washington State.

In Hawkins v. Miguel et al., Shelley Hawkins and Edwin Miguel entered into a covenant judgment settlement, establishing Miguel’s liability and assigning Miguel’s bad faith claims against his employer’s insurer, ACE American Insurance Company (ACE) to Hawkins. Thereafter, Hawkins obtained a ruling from the Court that the amount of the covenant judgment settlement was reasonable. However, in obtaining this reasonableness determination, Hawkins did not provide notice of the reasonableness hearing to ACE, and therefore did not provide ACE with the opportunity to be heard at the hearing.

Hawkins proceeded to obtain judgment against ACE on the assigned claims. In determining the validity of the reasonableness determination, in light of the fact that ACE was not provided notice and opportunity to be heard regarding the settlement amount, the Court of Appeals ruled that ACE was not bound by the reasonableness determination.

On June 23, 2021, Miguel entered into a settlement agreement for 41.5 million, with judgment interest at 12%. Thereafter, Hawkins filed a motion for determination of reasonableness with respect to the June 23, 2021 settlement agreement and for judgment thereon. On July 20, 2021, the superior court granted Hawkins’s motion to find the settlement reasonable. On August 12, 2021, Hawkins and Miguel mailed a 20 day pre-suit IFCA notice to ACE, and thereafter filed a corrected amended complaint, asserting claims against ACE for negligence, violation of IFCA, and breach of the duty of good faith on October 1, 2021. Pursuing litigation, the superior court found that as a matter of law, ACE breached the insurance policy, breached the duty of good faith, and violated IFCA. The court further struck ACE’s affirmative defense that Miguel failed to comply with the policy’s conditions to the prejudice of ACE. The Court awarded enhanced damages under IFCA, as well as attorney fees and costs under Olympic Steamship v. Centennial.  The superior court entered judgment for Hawkins against ACE in the amount of $5,443,200.00, and an additional judgment of $232,195.60 for attorney fees. ACE thereafter appealed.

On appeal, ACE argued that the superior court’s imputation of the reasonableness determination to ACE violated ACE’s right to due process as it was not given notice of the hearing. The Court considered what is meant by the insurer’s having been given the “opportunity to be involved in a settlement” pursuant to Mutual of Enumclaw Insurance Company v. T & G Construction, Inc. 165 Wn.2d 255, 267, 199 P.3d 376 (2008). The Court noted that it is undisputed that Hawkins and Miguel did not give ACE notice of the settlement or of their intent to obtain a reasonableness determination until after they had already presented their motion and obtained the order.

The Court relied on the long-settled rule that an insurer is “bound by the findings, conclusions, and judgment entered in the action against the tortfeasor when it has an opportunity to intervene in the underlying action.” This reflects the notion that where an insurer is given notice but fails to defend where there is an obligation to do so is bound by a litigated judgment on the liability indemnified.

Turning directly to reasonable settlements, the Court notes that Washington applies a corollary rule of equal antiquity that states an insurer is bound by a reasonable settlement, reasonable meaning made without fraud or collusion. The Court notes that reasonableness is especially relevant to a covenant settlement, which involves three features: (1) a stipulated or consent judgment between the plaintiff and insured, (2) a plaintiff’s covenant not to execute on that judgment against the insured, and (3) an assignment to the plaintiff of the insured’s coverage and bad faith claims against the insurer. Once the reasonableness of a stipulated judgment is established, the amount of said judgment becomes the presumptive measure of that component of damages in a later bad faith actions. Simply put, the reasonableness of a stipulated or covenant judgment plays a large role in a later bad faith suit.

In order to protect the integrity of reasonable settlements, and therefore avoid unreasonable settlements, Washington courts have adopted a nine factor test to determine the reasonableness of a settlement amount. Most notable here is the Supreme Court’s emphasis of these factors, especially where “the insurer has notice of the reasonableness hearing and has an opportunity to argue against the settlement’s reasonableness.” Besel v. Viking Ins. Co. of Wisconsin, 146 Wn.2d 730, 739, 49 P.3d 887 (2002). The court notes the importance of allowing an insurer to be heard on reasonableness where the court will bind the insurer to said settlement.  In conclusion, the Court clearly concluded the importance that an insurer is given notice of the reasonable hearing itself in order to be bound by its outcome, not merely notice that the underlying suit had been commenced.

In finding that ACE was not bound by the reasonableness determination, the Court of Appeals stated:

Because Hawkins and Miguel did not give ACE notice of the settlement and the reasonableness hearing, the reasonableness determination cannot bind ACE consistent with due process. As a result, as to ACE, there has been no binding determination that the settlement was reasonable, and there is no current basis on which to bind ACE to the settlement amount, or find it liable for that amount, interest, or treble damages. Therefore, the May 3, 2023 summary judgment order, judgment against ACE finding it liable for the consent judgment, and judgment against ACE finding it liable for treble damages under IFCA must be reversed to that extent.

The Hawkins opinion emphasizes the importance of procedure in covenant judgments and reasonableness hearings. An insured is expressly required to provide notice of a reasonableness hearing to the insurance company, however it is of even more importance that the insurer appears and participates in the reasonableness hearing in good faith.

The attorneys at Lether Law Group have in excess of thirty-five years experience in insurance coverage litigation, including but not limited to covenant judgments, reasonableness hearings and litigation insurance disputes in the state of Washington. Please do not hesitate to contact our office if you have any questions regarding the Hawkins opinions or any other insurance matter.

Appellate Practice Tips

Lether Law Group is engaged in appellate practice across multiple jurisdictions including multiple State Courts of Appeals and the Federal Circuit Courts of Appeal. As any experienced insurance defense litigator knows, a win at the trial level for your client is often not the end of the story. Accordingly, in this week’s newsletter, our office will share some helpful practice pointers we have gained through our litigation in the various Courts of Appeals.

            A Complete Record – The first and most essential step in any appeal is assuring you and your client have the complete trial court record. While seemingly elementary, effective appellate advocacy starts with a complete underlying record. Once the Appellant has designated the clerks’ papers and statement of arrangements, and prior to receiving a copy of those clerks’ papers, proactively cross reference opposing counsel’s designation with the trial court docket. If any relevant pleading is absent, or any potentially relevant pleading is absent from opposing counsels designated clerks’ papers, move to supplement the clerk’s papers. Failure to do so will foreclose an appellate attorney’s ability to argue a potentially relevant issue or procedural aspect before the appellate court.

           Comprehensive Legal Briefing – There is a natural tendency in appellate practice to rely partly upon the briefing at the trial court level because the issues in question were fully litigated. However, it would be an error to rely on the underlying briefing and assume it is sufficient for a review by the Court of Appeals. Rather, effective appellate practice requires a total reassessment of the underlying case from the facts as plead to the citations relied upon by the parties. The loadstar for any appeal is the standard of review. A de novo review by the Court of Appeals will requires a total reevaluation of the underlying case in a manner that a review for abuse of discretion might not. Further, the caselaw relied upon by the parties at the trial court level may have changed in the time since the trial court’s decision and should always be verified as to the holdings they purport. Accordingly, the process of drafting an appeal often requires a ground up reassessment of the facts and law surrounding the trial court’s decision.

            Patience – Appeals take time. The average lifespan of an Appeal is 18 to 24 months. Even after the Court of Appeals receives all briefing from the parties, it will often take 6 to 10 months or more to render a decision on the matter. Given this expansive timeline, it is helpful to communicate reasonable expectations to your client about the resolution their appeal. Further, it is essential to communicate with the client periodically throughout this time to inform them you are monitoring the matter throughout the lengthy appeals process.  

            Lether Law Group currently represents clients in multiple jurisdictions for their appellate matters. For questions regarding acute appeals State Courts of Appeal or the Federal Circuit Courts of Appeal, please feel free to contact our office.

Chris Kranda

Chris Kranda

Associate Attorney

Born and raised in the pacific northwest Chris attended Seattle University’s Matteo Ricci College where he graduated cum laude with a bachelor’s degree in Humanities. He remained in the area and earned his Juris Doctor Seattle University School of Law.

During law school, Chris externed in US District Court for the Western District of Washington for the Honorable Robert S. Lasnik, and later worked as a Rule 9 prosecutor before joining the King County Prosecutor’s Office as a Deputy Prosecuting Attorney. He served in District Court and Violent & Economic Crime Units from 2019 to 2021 before joining Lether Law Group to begin his civil practice.

In his free time, Chris enjoys camping, fly fishing, and road trips.

Lether Law Group is Pleased to Announce its Newest Shareholder

As many of you know, Kevin Kay joined Lether Law Group in November 2019 as a partner after many years of practice in the Northwest and around the country as coverage and extra-contractual counsel for a number of insurers.  Kevin started his civil practice with Tom Lether and Eric Neal more than 16 years ago and has continued to provide clients with excellent advice and representation since joining Lether Law Group.  Kevin’s leadership skills, legal acumen, and work ethic have made him an excellent Partner.  Lether Law Group is now proud to welcome Kevin as our newest Shareholder.  We look forward to many more years of success, growth, and fun with Kevin taking the next step in his journey as part of the Lether Law Group family.  Congratulations Kevin!

Seattle is back and Lether Law Group is here to help

People and businesses around the country continue to deal with the lingering effects of the COVID-19 pandemic.  Nevertheless, there is a sense of hope and anticipation in the air as businesses continue to reopen and people have begun to come together again.  The Lether Law Group family had a chance to experience this firsthand last week when we joined hundreds of Seattleites and hockey fans to celebrate the expansion draft for the inaugural season of the Seattle Kraken NHL team.

The event occurred in front of our offices on Lake Union and gave us all a chance to get on the water and celebrate with our friends and neighbors.  We had a great time swimming, cruising the lake, and interacting with those around as we all soaked in the sun and the experience of this lifetime event.

It was wonderful to see the City of Seattle and hockey fans come together to celebrate this new hockey franchise. Lether Law Group could not be more excited to watch and cheer on the Seattle Kraken in the months ahead.  We also look forward to celebrating the return of normalcy with all of you.  As we have been before and throughout the pandemic, we at Lether Law Group stand ready to help navigate any legal issues you may face and to celebrate the victories with you.  Go Kraken!