Besel v. Viking Ins. Co. of Wisconsin

Citation: 21 P.3d 293Docket: 16669-4-III

Court: Court of Appeals of Washington; February 26, 2001; Washington; State Appellate Court

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Mark Ralston, insured by Viking Insurance Company, caused an accident while driving under the influence, injuring his passenger, Robert Besel. Besel repeatedly requested Viking to pay Ralston's policy limit of $25,000, but the insurer failed to respond consistently, did not promptly investigate or settle the claim, and lost Besel's claim file. After Ralston consented to a $175,000 judgment against him in exchange for assigning his rights against Viking to Besel, Viking eventually paid the $25,000 policy limit. Besel then sued Viking, alleging bad faith and violations of the Consumer Protection Act. The trial court ruled against Besel on common law issues and limited damages to $25,000. However, the Court of Appeals determined Viking acted in bad faith and violated the CPA, reversing the trial court's decision on damages and remanding for further proceedings to determine the appropriate damages. Besel's counsel had sent multiple letters detailing injuries and demanding payment, highlighting Viking's failure to communicate or settle the claim despite acknowledging the demand.

On March 7, Mr. Besel's counsel contacted Viking regarding a claims file, which was reported lost by John Columbus on March 8 and again on March 12, with no requests for an extension of the settlement deadline. Mr. Besel filed suit against Mr. Ralston on March 13, obtaining a default judgment on April 4. Viking subsequently sought to set aside the default judgment, assessing Mr. Ralston's liability as 100 percent. Mr. Ralston had not previously been contacted by Viking about Mr. Besel's claim, only about his property loss claim. Upon receiving the summons, Mr. Ralston assumed Viking was managing the case. The default order was eventually set aside, and Mr. Besel and Mr. Ralston reached a stipulated judgment of $175,000, with Mr. Besel agreeing to satisfy the judgment under various conditions regarding recovery from Viking.

Viking initially objected to this consent judgment, claiming Mr. Ralston violated his insurance contract's cooperation clause, but later acknowledged Mr. Ralston's cooperation. The trial court found the judgment reasonable and entered a corresponding order in July 1992. Mr. Besel filed suit against Viking on July 28, 1993, alleging several claims, including breach of contract and bad faith, seeking $150,000 in damages. Cross-motions for summary judgment were filed, with the court denying Mr. Besel's motion and partially granting Viking's, citing genuine issues of material fact regarding bad faith and CPA violations, while limiting Mr. Ralston's recoverable damages to $25,000.

The trial court's consistent order was upheld after denying Mr. Besel's motions for reconsideration, leading to his appeal. Viking did not appeal its own partial summary judgment denial. A court commissioner granted discretionary review, allowing Mr. Besel to supplement the record with new evidence regarding the consent judgment's impact on Mr. Ralston's ability to secure financing for a home, remanding the matter to the trial court for consideration. The appeal was stayed pending these proceedings.

The trial court issued findings of fact, prompting this court to lift a stay and permit Mr. Besel to supplement the appeal record against Viking's objections. The standard for reviewing summary judgment involves determining whether there are genuine issues of material fact and if the moving party is entitled to judgment as a matter of law, with all facts viewed in favor of the nonmoving party. The court is tasked with evaluating whether the trial court erred in denying Mr. Besel's summary judgment motion on his common law and Washington Consumer Protection Act (CPA) claims, and in capping his common law damages at $25,000.

Mr. Besel's claim is based on an assignment of rights from Mr. Ralston regarding Viking. An assignee adopts the rights of the assignor, with no greater rights than those held by the assignor. The assignee's action is direct, not derivative, allowing them to sue in their own name. Additionally, a covenant not to execute, when paired with an assignment and settlement agreement, does not release the insurer from its obligations. This principle is reinforced by past cases, including one where an insured, limited by policy coverage, assigned a claim against an insurance agent while settling a judgment, highlighting that the absence of personal liability for the insured does not negate the assignee's rights.

The insured was compelled to enter a settlement due to the agent’s negligence, which resulted in an error by the trial court in assessing damages. Viking's mishandling of Mr. Besel's claim left Mr. Ralston facing personal liability significantly exceeding his insurance coverage, forcing him to accept a stipulated judgment and covenant not to execute. Viking did not challenge this judgment or assignment, and Mr. Ralston had valid claims against Viking at the time of the assignment, which Mr. Besel now asserts directly.

In addition, Mr. Besel contends that undisputed facts support his claim of Viking’s bad faith. Washington law recognizes bad faith in insurance, establishing that insurers have a duty to act in good faith due to their fiduciary relationship with the insured. This duty encompasses a broad obligation of fair dealing and includes the insurer's responsibility to investigate claims adequately and attempt good faith settlements, especially when liability is apparent. Statutes and administrative codes define specific breaches of this duty, including failing to respond promptly to claims and communications, as well as not conducting timely investigations. Breaches can occur even without intentional bad faith or fraud.

Viking argues that certain Washington Administrative Code (WAC) provisions apply only to first-party insureds, implying that Mr. Ralston's case does not concern them. However, Mr. Besel, as the assignee of Ralston's claims, inherits these protections. The determination of insurer bad faith is generally a factual issue, with Mr. Besel responsible for demonstrating the absence of material fact disputes. Key undisputed facts reveal Viking's failure to respond to multiple communications from Mr. Besel and Mr. Ralston, loss of the claims file, and inability to justify these actions. Such failures breach the regulatory requirement for timely responses and constitute unfair or deceptive practices under the WAC, indicating bad faith.

Viking's defense, asserting that it cannot be deemed to have acted in bad faith solely for not settling within a deadline set by Mr. Besel's counsel, is unconvincing. It disregards Viking's consistent non-responsiveness, lack of communication with Ralston, and the unexplained loss of the claims file. Viking's complaint regarding Ralston's failure to notify them of the lawsuit is unfounded, as Ralston believed the insurer was managing the situation. Importantly, Viking has not claimed a breach of contract by Ralston and eventually paid his full coverage. Ralston had informed Viking of Besel's injuries, and Besel had communicated his claim in October 1990. Additionally, Viking managed to set aside a default judgment on liability, indicating no unfair surprise. Viking's argument that it had no duty to investigate prior to litigation is also unpersuasive, as it overlooks its failure to communicate with Besel and contradicts both the WAC provisions and its contractual obligations. Lastly, Viking's reliance on a precedent case that allowed for mistakes in claims handling does not apply here, as it involved an honest mistake regarding liability, unlike Viking's situation.

Division Two determined that the insurer, Viking, acted in bad faith due to frivolous reasons for delays, including failure to respond to correspondence and losing a claim file. The trial court's decision not to grant Mr. Besel summary judgment on the bad faith issue was deemed erroneous. Mr. Besel argued that his recovery should not be limited to Mr. Ralston's policy limits of $25,000, despite Viking's and the trial court's position that recovery was confined to the contract amount due to the absence of a reservation of rights. The analysis referenced conflicting case law, particularly Safeco Insurance Company v. Butler and Greer v. Northwestern National Insurance Company. The court clarified that Mr. Besel's bad faith claim, arising in a third-party context, allows recovery beyond contract limits, as bad faith claims are distinct from contract claims. The existence of bad faith breaches the general contract rules as outlined in Kirk v. Mt. Airy Ins. Co., emphasizing that traditional contract damages are insufficient for bad faith breaches.

Additionally, the court addressed the presumption of harm in bad faith cases. The Butler case established a rebuttable presumption of harm once bad faith is demonstrated, which was interpreted to apply broadly, as noted in Kirk. Although the Supreme Court later modified this presumption to exclude first-party claims in Coventry v. Am. States Ins. Co., it maintained that in third-party contexts, the inherent conflict of interest justifies a presumption of harm due to the insurer's bad faith.

The Coventry court determined that in a first-party insurance context, a rebuttable presumption of harm due to conflict of interest does not apply. In contrast to previous cases like Butler and Tank, there was no reservation of rights defense in this instance; however, it involved Viking's failure to protect its insured's interests, which is a critical issue regardless of the absence of reservation. Viking's bad faith breach of contract resulted in Mr. Ralston being deprived of the benefits of his insurance, delaying settlement, exposing him to litigation, and leading to a substantial judgment against him. Consequently, harm is presumed in this case. Viking's attempt to counter this presumption with findings related to Mr. Ralston's home purchase was deemed irrelevant in the summary judgment context. Viking's inaction directly resulted in Mr. Ralston facing litigation and a $175,000 judgment, which initially hindered his ability to secure real estate financing. Although he later obtained financing through an indemnification agreement from Viking, the judgment remains a concern for lenders. Therefore, Viking cannot argue that Mr. Ralston was not harmed. However, there is a genuine issue regarding the extent of damages, which must be determined by a trier of fact.

Regarding estoppel, Mr. Besel claims Viking is precluded from denying payment of the entire judgment. While Viking is liable for damages exceeding the policy coverage, it is not automatically required to pay the full judgment amount. Once harm from bad faith is established, the insured can seek an appropriate remedy. Case law supports that an insurer may be liable for damages due to negligence or bad faith in failing to settle, even beyond policy limits. Estoppel applies to bad faith claims involving reservation of rights or failure to defend, but not to contract or first-party claims.

Viking had a contractual and statutory obligation to investigate and settle claims, as well as to defend Mr. Ralston in related lawsuits. The evidence indicates that Viking failed to provide these essential benefits, warranting damages beyond the contract amount. While Mr. Besel argues for the full $175,000 judgment as the sole remedy, this contradicts his agreement with Mr. Ralston, which stipulates that the judgment will be satisfied at the conclusion of the case, irrespective of the outcome. Consequently, Mr. Besel's damages exceed the $25,000 policy limit, but it is not legally justified to award the entire judgment amount at this stage; the full extent of his damages will be determined at trial.

On the Consumer Protection Act (CPA) claim, the court agrees that summary judgment should have been granted to Mr. Besel. To succeed in a CPA claim, a plaintiff must demonstrate an unfair or deceptive act in trade or commerce that impacts public interest, causes injury, and links that injury to the deceptive act. Viking's violations of specific insurance regulations qualify as per se unfair trade practices, fulfilling the first element of the CPA claim. The second and third elements are also satisfied due to the established legislative and judicial recognition of insurance code violations under the CPA. For the fourth element, Mr. Besel must show a specific injury to his business or property, which does not need to be substantial but must be proven. Nonquantifiable injuries, like loss of goodwill or minor monetary damages, can meet this requirement. Damages awarded under the CPA, however, relate to treble damages based on actual damages established.

Viking contends that Mr. Ralston suffered no harm due to a covenant not to execute, which they argue protects him from future personal liability and limits damages to $25,000. However, this position is deemed unpersuasive as the potential for a breach of agreement exists due to lack of cooperation between Ralston and Besel. Following Viking's mishandling of the claim, Mr. Ralston accepted a $175,000 judgment, which poses concerns for lenders and title insurers. Evidence, including correspondence from a mortgage company, indicates that this judgment initially hindered Mr. Ralston's ability to secure real estate financing, although he eventually overcame this obstacle. Nonetheless, the judgment remains on his title, complicating future financing and causing minimal harm to his creditworthiness.

Mr. Besel has successfully established the element of injury as a matter of law. Additionally, causation is present, linking Viking's delayed response to Mr. Besel's claim with Mr. Ralston's acceptance of the judgment and subsequent financing difficulties. Consequently, Mr. Besel has fulfilled all five elements of his Consumer Protection Act (CPA) claim, and the trial court erred by not granting summary judgment in his favor. As Viking concedes liability for the full $25,000 policy limit, it is also liable for treble damages up to the statutory maximum of $10,000 under RCW 19.86.090.

Regarding prejudgment interest, Mr. Besel's request is deemed premature, as it is appropriate only for liquidated claims. The trial court will assess the appropriateness of prejudgment interest based on this criterion. Mr. Besel is entitled to recover reasonable attorney fees due to his success on the CPA claim, in accordance with RCW 19.86.090, including fees for any appeal if he complies with relevant procedural requirements. The determination of reasonable fees is to be made by the trial court on remand. The opinion concludes with a reversal and remand for further proceedings. Additionally, it notes that Mr. Besel has not pursued a breach of contract claim separately on appeal, effectively abandoning it.