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Washington State Court of Appeals New Decision On Covenant Judgments

On January 30, 2023, Division One of the Washington State Court of Appeals issued a published opinion further addressing covenant judgments in Washington. In Garza v. Perry, No. 83377-4-I, 2023 Wash. App. LEXIS 144, at *8 (Ct. App. Jan. 30, 2023), the Court of Appeals issued a decision primarily holding that an insurer cannot nullify a stipulated settlement based on mutual release language in the agreement because the insurer is not a party to the agreement.

The Garza case arose out of a motor vehicle accident. After failed negotiation attempts with the defendant’s insurer, the plaintiffs and defendant entered into a stipulated settlement with a covenant judgment in the amount of $2.5M and an assignment of rights against the defendant’s insurer. The settlement agreement contained a paragraph that stated the parties would mutually release each other including from the assignment of rights if the insurer provided written proof that it would fully indemnify defendant from any final judgment.  As required, the parties sent a copy of the settlement agreement to the insurer with an email offering to settle for $2.5M if paid within 10 business days.

The insurer did not agree to pay the $2.5M, but instead waived its limits and advised that it would indemnify the defendant for any judgment. Based on that letter, the insurer asserted that Plaintiffs’ and Defendant had therefore mutually released each other. The parties to the agreement disagreed and made a written addendum to their agreement to accurately reflect the actual meeting of the minds. Nevertheless, the insurer intervened and asserted that it had a valid settlement agreement with the parties.

The trial court rejected the argument and the Court of Appeals affirmed on appeal. The Court of Appeals noted that purpose of a covenant judgment is to protect the insured from the bad faith of an insurer. It does not form a contract with the insurer or for the insurer’s benefit. The Court also rejected the insurer’s argument because the agreement as a whole, including the written reformation, evidenced that the agreement was only between Plaintiffs and Defendants and also required that the intent was to only release the covenant judgment if the insurer agreed to pay the $2.5M.

The insurer also attempted to attack the trial court’s reasonableness determination on appeal based upon three arguments: 1) that the trial court had made oral statements regarding a lack of basis for the $2.5M amount at the reasonableness hearing; 2) that the Plaintiffs’ experts were not credible. and 3) that there was no substantial evidence supporting the conclusion that the agreement was not the product of collusion and fraud. All three arguments were rejected on appeal.

With respect to the oral statements of the trial judge, the Court of Appeals reiterated Washington law that a trial court’s oral statements have no binding effect unless explicitly incorporated into the court’s written order. The statements at issue were not incorporated into the order and, as such, were treated as having no import on the case.

The second and third arguments were effectively rejected for the same reason. Specifically, they were rejected because the substantial evidence review standard for review of reasonableness hearings requires the appellate court to view the evidence in the light most favorable to the prevailing party.  

The bad faith evidence argument was rejected because there was evidence that the settlement agreement was subject to review, revisions, and input by independent coverage counsel. The credibility argument was also rejected because a factfinder’s credibility determination are not subject to review under the substantial evidence standard.

The Garza case provides a two main takeaways for any insurer facing a covenant judgment. First, collateral attacks on the language of the covenant judgment settlement agreement are unlikely to prevail because an insurer is not a party to the agreement. Second, the standard of appellate review for reasonableness hearings is a difficult standard to overcome on appeal.

Because of this, an insurer that fails to fully develop the record at a reasonableness hearing runs the significant risk of being unable to successfully challenge a reasonableness finding on appeal. As a result, insurers need to be fully prepared to fully present their case at any reasonableness hearing. Moreover, insurers and insurer counsel should specifically request that the judge explicitly incorporate any helpful oral statements into its final order.

Lether Law Group has been successfully defending insurers against covenant judgments before the trial court and on appeal for more than 30 years. If you would like to discuss covenant judgment defense or any other matter, please do not hesitate to contact us.

Insurance Coverage & Volcanic Activity

After nearly 40 years of silence, Moku‘āweoweo, the summit caldera of Mauna Loa on the Big Island of Hawaii, began erupting. The eruption lasted for approximately twelve days from November 27, 2022 until December 10, 2022. Big Island residents are no stranger to volcanic activity, but the unpredictable nature of these eruptions can often leave local residents and insurers unprepared. Outside of the insurance industry, most people do not consider or think about whether there is coverage for volcanic related activity under an insurance policy. 

On the Big Island of Hawaii, homeowner’s policies typically cover property damage caused by lava flow. Volcanic eruptions are not specifically excluded under standard homeowner’s policies. Additionally, some homeowner’s policies may include a specific endorsement extending coverage for property damage to dwellings or other structures caused by volcanic eruptions. Under this type of endorsement, coverage is often available for losses caused by eruption, explosion, effusion of a volcano, or a moving outpour of lava.

Homeowners and insurance coverage professionals should also be aware that coverage may be limited under homeowner’s policies that include an earth movement exclusion. When an eruption begins, earthquakes and other seismic activity oftentimes occur throughout the course of the eruption. Pursuant to standard earth movement exclusions in Hawaii, coverage for property damage may be excluded if the property damage is caused by earthquake, land shock waves or tremors before, during, or after a volcanic eruption as opposed to damage from lava and/or the eruption itself. This requires an examination of the proximate cause of the damage itself and can be a complicated issue.

The nature and extent of available insurance coverage after a volcanic eruption can be a complicated issue requiring a careful examination of causation, the nature and extent of the damages involved, and a thorough review of the terms and conditions of the applicable insurance policy. Needless to say, with the proper awareness of exactly what is and is not covered under homeowners’ respective insurance policies, the Big Island of Hawaii remains a dream destination to live and/or vacation. Our firm proudly represents clients across the Hawaiian Islands and we are always happy to answer any coverage related questions you may have.

Hau’oli Makahiki Hou (Happy New Year) to all!



The Washington State Consumer Protection Act (CPA) prohibits the use of unfair methods of competition and unfair or deceptive acts or practices in the insurance industry. The Washington Supreme Court has held that in order to prevail on a private CPA claim, a plaintiff must establish 5 elements: (1) an unfair or deceptive act or practice, (2) occurring in trade or commerce, (3) with public interest impact, (4) an injury to the plaintiff’s business or property, and (5) causation. Hangman Ridge, 105 Wn.2d at 780. While this case law provides some guidance, it is silent as to whether a particular practice is “unfair” or “deceptive” under the CPA.

On November 28, 2022, the Washington Court of Appeals further defined what constitutes an unfair or deceptive practice under the CPA. The case of Stan Shiff, M.D., Ph.D. v. Liberty Mutual Fire Insurance Co., et. al, dealt with whether an insurer violates the CPA by “relying solely on a mechanistic, formulaic approach” to determine the reasonableness of a medical providers bill. The Court held this practice to be a violation of the CPA.

Shiff arises out of a dispute between a medical provider and an insurer regarding payment of medical bills. Stan Shiff, M.D., Ph.D, is a neurologist who treated patients insured by Liberty Mutual Fire Insurance Company. Shiff submitted bills to Liberty Mutual for his treatment of its insureds, however Liberty Mutual refused to pay these bills in full. Instead, Liberty Mutual used its “80th percentile practice” to determine whether these bills were reasonable and warranted full payment. In using its 80th percentile practice, Liberty Mutual determined that payment of the full amount of the charges submitted by Shiff was not reasonable. As such, Liberty Mutual reduced its payment on the bills to the 80th percentile amount.

In using the 80th percentile practice to determine whether payment of the full amount of a provider’s bill was reasonable, Liberty Mutual relied solely on the FAIR Health Database. The FAIR Health database “compares billed charges to the charges submitted by other medical providers within the same broad geographical area.” Liberty Mutual relied on this database to determine that Shiff’s charges were unreasonable, as the exceeded the 80th percentile of charges in the FAIR Health database for the same services in the same broad geographical area.

With regard to liability under the CPA, Shiff relied on the precedent in Folweiler Chiropractic, PS v. Am. Fam. Ins. Co., 5 Wn. App. 2d 829, 429 P.3d 813 (2018). In Folweiler, the Court established that an insurer had a duty to conduct an individualized investigation, including the duty to evaluate the identity, background, credentials, experience, or any personal characteristic of the individual provider in evaluating the reasonableness of the bill. Folweiler, 5 Wn. App. 2d at 838. The Court found in favor of Shiff, ruling that it was undisputed that Liberty Mutual did not conduct the kind of individualized investigation as required by Folweiler.

Based on Liberty Mutuals violation of its duty to conduct an individualized investigation, Shiff argued Liberty Mutual’s 80th percentile practice violated the CPA. Liberty Mutual disagreed asserting that because the practice was approved by the Office of the Insurance Commissioner (OIC), it was not a violation of the CPA. Liberty Mutual asserted that, even if the 80thpercentile practice constituted an unfair practice, it is exempt from CPA liability pursuant to the statutes regulated industries exemption, RCW 19.86.170. Liberty Mutual argued that because insurers are prohibited from obtaining regulatory approval of its policies prior to issuing them, conduct arising from those policies is “permitted” pursuant to the CPA’s exemption provision. The Court rejected this argument, finding “Liberty Mutual’s 80th percentile practice is indistinguishable from the practice we held unlawful in the Folweiler decision.” Additionally, the Court found Liberty Mutuals exemption provision argument unconvincing, noting that it is contrary to the “legislature’s clear mandate” that violations of the insurance regulations are subject to CPA liability. The court clarified that to agree with Liberty Mutual would “exempt broad swaths of insurer conduct from CPA liability, in direct contravention of our legislatures express intention that such conduct be subject to our states’ consumer protection law.” Therefore, the Court rejected Liberty Mutual’s reading of the CPA exemption provision.

As a result of the Shiff decision, use of any formulaic approach to determining the reasonableness of a provider’s medical bill constitutes a violation of the Washington Consumer Protection Act. Pursuant to the Folweiler and Shiff decisions, insurers are required to conduct an individualized investigation before reducing a medical bill.

Lether Law Group currently represents multiple insurers in coverage litigation in state and federal courts in Washington involving claims under CPA. If you have questions about the implications of Shiff or general questions in regard to pending insurance claims and compliance with Washington insurance law, please feel free to contact our office.

Thanksgiving and a Cornucopia of Potential Insurance Claims

   Thanksgiving is a time to spend with family and friends and celebrate all that we are thankful for. It is also a time for a cornucopia of potential insurance claims. Thanksgiving-related insurance claims can run the gamut from auto accidents, to slip-and-falls, fire losses, and even business losses.

   This year, it is estimated that 54.6 million people will travel more than 50 miles for their Thanksgiving celebrations, which greatly increases the risk of an auto accident or other travel-related insurance claim. In addition, the National Fire Protection Association (“NFPA”) has noted that Thanksgiving is the leading day of the year for home cooking fires in the United States.[1]  In fact, the NFPA has reported that home cooking fire reports increase over 200% on Thanksgiving Day versus the daily average for the rest of the year.[2]

   Increased risks of insurance claims are also not limited to homeowners and/or auto claims and the risks do not end on Thanksgiving Day. Millions of Americans will also venture out on Black Friday to take advantage of the many deals that can be found on the biggest shopping day of the year. This leads to increased exposure for businesses from parking lot accidents, slip-and-falls, miscellaneous property damage, and theft.  

   The increased number of losses over the Thanksgiving Weekend also results in an uptick in insurance claims under auto policies, homeowners policies, and business insurance policies. This means that insurers need to be ready to staff and handle a potentially large volume of new claims, both first-party and third-party, in the days and weeks surrounding the Thanksgiving Holiday.

   With these increased risks in mind, the Lether Law Group Family encourages everyone to use extra caution as you enjoy time with family and friends and/or as you venture out on Black Friday.

   If something unexpected should occur or if you need advice for post-Thanksgiving-related insurance claims, please keep in mind that the attorneys at Lether Law Group have over 33 years in combined experience in advising insurers and defending first and third-party claims. This includes providing coverage advice and defending large property losses, catastrophic accident injuries, and other spontaneous and unexpected claims. Please feel free to contact us at any time if you would like to discuss any Thanksgiving-related claims or any other matter.


[1] NFPA urges extra caution when preparing your feast this Thanksgiving, by far the leading day of the year for U.S. home cooking fires

[2] NFPA Keep everyone safe from fire hazards this Thanksgiving | NFPA






                On October 17, 2022. The United States Court of Appeals for the Ninth Circuit issued additional Opinions regarding COVID-19 Business Interruption claims.

                In McCulloch, et al v. Valley Forge Ins. Co., et al¸ No. 21-35520, 2022 U.S. App. LEXIS 2860, 2022 WL 9830777 (9th Cir. Oct. 17, 2022), the Court affirmed a summary judgment ruling from the Western District of Washington dismissing claims by several dentists/dental clinics. The Plaintiffs argued that their claims were improperly dismissed because they asserted the claims resulted from “direct physical loss of or physical damage to” their insured premises. The Ninth Circuit disagreed.

                While the appeal was pending, the Washington State Supreme Court issued its ruling in Hill & Stout, PLLC v. Mutual of Enumclaw Ins. Co., 515 P.3d 525 (2022), in which the Supreme Court held that “loss of intended use of property” and “loss of business income” from COVID-19 orders did not qualify for insurance coverage as “direct physical loss of or damage to property.” As a result, the Ninth Circuit dismissed the breach of contract/direct physical loss claim.  The Court also dismissed Plaintiff’s claims that they were entitled to coverage under the policies’ civil authority coverage because there was no evidence that the Washington State Governor’s orders were in response to any actual physical property damages. Therefore, the Ninth Circuit concluded that the Hill & Stout Opinion also precludes coverage.

                In addition, the Ninth Circuit dismissed the appeal for extra-contractual claims. With respect to the extra-contractual claims, certain Plaintiffs argued that the insurer unreasonably denied their claim and failed to conduct a reasonable investigation of the claims. The Ninth Circuit rejected both arguments. Specifically, the Court noted that the unreasonable denial claim first required a showing of an incorrect denial of the claim. Because the claim was properly denied, the extra-contractual claim failed. The Court rejected the unreasonable investigation argument because “the insurer’s denial of coverage was based on a legal interpretation of the policy. [As a result,] [t]here was no need for factual investigation…”

                In Hot Yoga, Inc. v. Philadelphia Indem. Ins. Co.¸No. 21-35806, 2022 U.S. App. LEXIS 28674, 2022 WL 9732180 (9th Cir. 2022), the Ninth Circuit similarly affirmed dismissal of contractual claims based on the Washington State Supreme Court’s Opinion in Hill & Stout. In addition, the Court held that the policy’s virus exclusion, precluding coverage when a virus initiates the causal chain that led to the cause of any claimed loss, barred coverage. 

                The Ninth Circuit also rejected the insured’s arguments regarding its extra-contractual claims. The insured argued that the district court erred in dismissing extra-contractual claims premised on the insurer allegedly “misrepresenting the pertinent policy language and preemptively denying the claim without any investigation.” The Ninth Circuit held that the claims necessarily failed because the policy did not provide coverage. 

                As we previously opined, it is clear that the Washington State Supreme Court’s decision and reasoning in Hill & Stout is having a substantial impact on pending COVID-19 BI claims in Washington. We anticipate that there will be several other similar rulings in the near future.

                If you have any questions about the above Ninth Circuit cases and how the Hill and Stout case will continue to impact COVID-19 BI claims and cases, please give us a call.




Kevin J. Kay

Kevin J. Kay


Kevin is a graduate of Pacific Lutheran University and Seattle University School of Law. He is licensed to practice in the state and federal courts of Washington and admitted to practice before the Ninth Circuit Court of Appeals. In addition, Kevin has appeared pro hac vice in courts in Louisiana and California. Kevin has represented insurers and insureds in coverage for 16 years. These claims involve personal and commercial auto policies, commercial general liability, professional liability, and E&O insurance. Kevin has also advised and represented risk pools, insurers, and insured in matters ranging from automobile/bus accidents to catastrophic landslides. His practice also includes construction defect disputes, personal injury claims, commercial leases, and significant property damage disputes.



 As noted in a previous newsletter, Division Two of the Washington State Court of Appeals issued an opinion on April 19, 2022 in Beasley v. Geico General Insurance Company and Aaron Yaws, No. 54997-2-II, which addressed the meaning of the term “actual damages” under the Washington Insurance Fair Conduct Act (IFCA), RCW 48.30.015 and holding that the term “actual damages” includes noneconomic damages. Beasley v. Geico General Insurance Company and Aaron Yaws, No. 54997-2-II.  The unpublished part of the opinion also addressed the issue of tendering “undisputed” amounts in the context of UM/UIM claims, which had not been addressed in prior case law in Washington.

 Last week, The Court of Appeals withdrew the Beasley opinion in response to a Motion for Reconsideration filed by GEICO. The Order granted the Motion for Reconsideration in part, withdrew the earlier opinion, and advised that a revised opinion would be filed.  To date, the revised opinion has not yet been issued. As a result, there is no information regarding which portion of the prior opinion has been reconsidered. Nevertheless, and as a result of the withdrawal, the earlier Beasley opinion is no longer good law and should be disregarded by insureds and insurers alike. 

Lether Law Group currently represents multiple insurers in coverage litigation in state and federal courts in Washington involving claims under IFCA. If you have questions about the implications of Beasley or general questions in regard to pending insurance claims and compliance with Washington insurance law, please feel free to contact our office.


Ellen Mcgraw

Ellen Mcgraw

Associate Attorney

Meg is from Oklahoma City, Oklahoma. She received a bachelor’s degree in Environmental Sustainability from the University of Oklahoma, where she graduated with honors. She went on to receive her Juris Doctor from Lewis & Clark Law School, graduating cum laude. Before joining Lether Law Group, Meg served as a judicial extern for the Honorable Chief Judge Marco A. Hernández in the U.S. District Court for the District of Oregon.