Northwest Insurance Law Blog : Seattle Insurance Lawyer & Attorney : Williams Kastner Law Firm : Tacoma, Washington, Portland

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On October 23, 2008, the Washington Supreme Court rejected a liability insurer’s attempt to use a subsequent declaratory judgment action to challenge a settlement entered into by its insured. In doing so, the Court held that if an insured obtains a reasonableness determination from the trial court in the underlying liability action, the settlement amount presumptively establishes the amount of the damages award for purposes of coverage and an insurer (even in the absence of any bad faith) cannot later attempt to re-litigate issues resolved by the settlement:

When the insurer had an opportunity to be involved in a settlement fixing its insured's liability, and that settlement is judged reasonable by a judge, then it is appropriate to use the fact of the settlement to establish liability and the amount of the settlement as the presumptive damage award for purposes of coverage. . . .

  

[I]t would be inequitable to allow an insurer to relitigate questions that were resolved in the underlying liability action. Accordingly, we hold that an insurer is not entitled to litigate factual questions that were resolved in the liability case by judgment or arm's length settlement. 

As a practical matter, the decision appears to give insureds in Washington the ability to settle claims over their insurers’ objections so long as the settlement can withstand scrutiny at a reasonableness hearing.

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Most parties generally assume that whatever they say at mediation is confidential and cannot later be used against them in court. But the protections provided by Evidence Rule 408 and state mediation statutes like the Uniform Mediation Act are not absolute. In some circumstances, statements made during mediation can be admissible or at least discoverable. 

One instance in which mediation communications may not be confidential, inadmissible or exempt from discovery is in bad faith coverage claims against an insurer. A recent decision by the United States District Court for the Eastern District of Washington in Mutual of Enumclaw v. Cornhusker Casualty Insurance illustrates how an insurer’s statements at mediation can be used to support a later bad faith claim. Cornhusker and Enumclaw both insured the same defendant in a motor vehicle personal injury case and both participated in a mediation of that claim. Cornhusker, however, asserted at the mediation that it had coverage defenses such that it would only contribute a limited amount to settle the claim. In response, Enumclaw funded a settlement without Cornhusker’s participation, took an assignment of the insured’s claims against Cornhusker and filed claim against Cornhusker. 

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On October 10, 2008, Judge Ronald B. Leighton of the United States District Court for the Western District of Washington dismissed a four-state class action claim against Chicago Title Insurance Company based upon Section 8(b) of the Real Estate Settlement Practices Act.

The statute prohibits fee splitting for real estate settlement charges except between parties that provide some service to the purchaser/borrower. The plaintiff class representative alleged that Chicago Title was liable for restitution, treble damages and attorney's fees to borrowers in Washington, Oregon, Michigan and Tennessee and claimed that Chicago Title had improperly split excessive title insurance premiums with its title agent. 

In an order granting Chicago Title’s motion to dismiss, the court rejected the class action claim, as alleged, because the plaintiff class representative acknowledged that both Chicago Title and its title agent had performed some work. The court rejected plaintiffs' attempt to expand the statute to prohibit excessive charges, noting that other federal courts have previously rejected attempts to use the RESPA as a price control statute.