Title: Vanderpool v. Grange Insurance Ass'n

State: washington

Issuer: Washington Supreme Court

Document:

110 Wn.2d 483 (1988) 756 P.2d 111 JAY D. VANDERPOOL, ET AL, Petitioners, v. GRANGE INSURANCE ASSOCIATION, ET AL, Respondents. No. 52366-5. The Supreme Court of Washington, En Banc. May 19, 1988. *484 Lacy, Kane & Richardson, P.S., by Scott M. Kane, for petitioners. Murray, Dunham & Murray, by Wayne Murray, for respondents. PEARSON, C.J. This case involves an action by an injured party seeking to sue an employee after releasing the vicariously liable employer from liability. We reverse the Court of Appeals and hold that release of an employer from vicarious liability does not, by operation of law, release the primarily liable employee. On February 9, 1982, defendant Gerald Curtis, an employee of defendant Richard Goodman (Goodman), d/b/a Dick's Exhaust, backed a car into the path of Yvonne Vanderpool's car. It is uncontroverted that at the time of the accident Mr. Curtis, an agent, was acting within the course and scope of his employment with his principal, Goodman. Defendant Grange Insurance Association (Grange) insured Goodman under a garage keeper's legal liability policy. Mr. Curtis was also insured under that policy as Goodman's employee. Mrs. Vanderpool sustained injuries to her left knee and property damage to her car. She was taken to a hospital emergency room where X-rays were taken and no fractures were diagnosed. Her knee was wrapped with an Ace bandage and she was advised not to walk on it. Mrs. Vanderpool nonetheless returned to work on crutches the following day. On February 10, 1982, Mrs. Vanderpool conferred with *485 Rex Droz, an insurance adjuster for Grange, regarding payment of the medical and car repair bills she had incurred. Mr. Droz met with Mrs. Vanderpool, inspected the damage to her car, and arranged for repairs at the body shop of Mrs. Vanderpool's choice. On February 20, 1982, Mrs. Vanderpool informed Mr. Droz that although her knee had improved, she was still on crutches. Other than the day of the accident, she had not seen a doctor. Mrs. Vanderpool later consulted her family physician about pain in her knee; her doctor informed her that the knee injury was probably just a bruise and a strained ligament. In early March 1982 settlement negotiations commenced. The Vanderpools rejected the initial offers made by Mr. Droz. Soon thereafter, the Vanderpools discussed the situation with an insurance adjuster not associated with Grange. He advised them that $1,000, plus car repairs and medical bills, would be a reasonable and fair sum to ask for in settlement. On March 12, 1982, Mrs. Vanderpool signed a release and future medical agreement, settling for $2,840.16. This amount included payment of $1,000 for pain and suffering, medical bills thus far incurred, rental car expenses and car repairs. In addition, $2,000 was set aside for future medical expenses incurred over the next 18 months. The only party named in the release was "Richard Goodman dba Dick's Exhaust". Prior to signing the release, Mrs. Vanderpool did not have or seek the advice of an attorney. The parties did not discuss release of Mr. Curtis or compensation for future lost wages. Mrs. Vanderpool testified that she believed Mr. Droz treated her fairly and that she never intended to release Mr. Curtis by signing the agreement, and that she believed her condition would improve. Mr. Droz' knowledge of her condition was limited to what the Vanderpools had told him; he never obtained medical records because Mrs. Vanderpool indicated that her injuries were minor. *486 The drafts issued as consideration for the release contained language stating that endorsement by the payee constituted release of all claims against all parties associated with the accident. The Court of Appeals noted that both Mrs. Vanderpool and Mr. Droz testified that they believed this language was superfluous and did not alter their formal agreement. After signing the release, Mrs. Vanderpool sought additional medical treatment. The condition of her injured leg had not improved and surgery was recommended. On May 18, 1982, Mr. Vanderpool approached Mr. Droz to see whether Grange would cover his wife's lost wages while she was having diagnostic knee surgery. Because future lost wages were not covered by the release, Grange refused to reopen the settled claim. The Vanderpools sued, seeking rescission of the release and a judgment for personal injuries and property damages. The trial court did not find any evidence of intentional fraud, willful false representation or overreaching, but rescinded the release of Goodman on the theory of "negligent misrepresentation by omission". The court held that Mr. Droz had an affirmative duty to inform Mrs. Vanderpool that she could settle the bodily injury and property damage claims separately. The Court of Appeals reversed in an unpublished opinion, holding that Mr. Droz had no affirmative duty under the circumstances to inform the plaintiffs that settlement under one part of the policy could take place while settlement under another section of the policy was held in abeyance. The Court of Appeals also held that the release of Goodman, a vicariously liable solvent principal, also released Mr. Curtis, a primarily liable agent. Mrs. Vanderpool petitioned for review of one limited issue: whether the release of a principal prior to the filing of a lawsuit where the injured party is unrepresented by counsel also releases the responsible agent who caused the injury. We hold that settlement with a principal does not automatically release the primarily liable agent. *487 In Glover v. Tacoma Gen. Hosp., 98 Wn.2d 708, 658 P.2d 1230 (1983), we held that settlement with a solvent agent released the vicariously liable principal after the trial court judge determined that the settlement was reasonable. Grange incorrectly contends that Glover is controlling authority in this case. When, as in Glover, a plaintiff settles with a solvent agent from whom he could have received full compensation, the very foundation of the principal's liability is undermined. A principal is only secondarily liable under a respondeat superior theory. The policy reasons underlying vicarious liability (to afford the plaintiff the maximum opportunity to be fully compensated) are inapplicable when a plaintiff has accepted a release from the primarily liable tortfeasor who was financially capable of making him whole. There is no policy reason to allow that plaintiff to then pursue a claim against the defendant who is only secondarily liable. The Glover court is clear that the principal is released by operation of law as a result of a release of the agent only if that agent is solvent. Glover, at 722. Furthermore, the Glover result is necessary because a release between a plaintiff and an agent would foreclose any possibility of the principal receiving contribution from his agent. RCW 4.22.040(3) abolishes the common law right of indemnity between passive and active tortfeasors. However, with regard to the abolition of implied indemnity, the Senate Select Committee on Tort and Product Liability Reform Final Report states, "Under current law where the active/passive analysis can be applied, the entire liability can be shifted from the passive tortfeasor to the active tortfeasor." Senate Journal, 47th Legislature (1981), at 636 (the difference now is that the shifting takes place under a comparative fault analysis). This therefore should allow an innocent secondarily liable principal to seek contribution against the agent wrongdoer. However, if a plaintiff settles with an agent, the present statutes extinguish the nonsettling principal's right to contribution from the primarily liable agent. RCW 4.22.060(2). See also Zamora v. Mobil Oil *488 Corp., 104 Wn.2d 211, 220, 704 P.2d 591 (1985). Such inequity led this court in Glover to find that settlement with a solvent agent also serves by operation of law to release the principal. Glover, at 723. It would be inequitable to allow a plaintiff to recover from a principal after destroying the principal's right to reimbursement from the actual wrongdoer. [1, 2] However, no such policy reasons exist when a principal is released and a plaintiff sues the actual wrongdoer. There is no reason to apply RCW 4.22.040(1) which allows a court to determine that two or more persons may be treated as a single person. Rather, RCW 4.22.060(2) should be applied. RCW 4.22.060(2) states: "A release ... entered into by a claimant and a person liable discharges that person from all liability for contribution, but it does not discharge any other persons liable upon the same claim unless it so provides." Releases are contracts and their construction is governed by the legal principles applicable to contracts and they are subject to judicial interpretation in light of the language used. Stottlemyre v. Reed, 35 Wn. App. 169, 171, 665 P.2d 1383, review denied, 100 Wn.2d 1015 (1983). The pivotal inquiry is whether the parties to the release intended to release both the principal and the agent. If such intent is clear from the language of the release, then both parties are released. However, absent such evidence of intent to release both parties, the statute provides that no other person liable on the same claim is released. RCW 4.22.060(2). The statute is clear that no reservation of rights against another tortfeasor is necessary to retain a cause of action against a nonsettling defendant. This is sound policy because releases frequently are signed by plaintiffs ignorant of the law and without legal advice. W. Keeton, D. Dobbs, R. Keeton & D. Owen, Prosser and Keeton on Torts 335 (5th ed. 1984). There are many situations where a plaintiff might settle with a principal, but not intend to release the agent. For example, settlement may represent the principal's limit of solvency rather than the fair value of the claim. Settlement *489 may represent a compromise due to uncertainty as to whether the doctrine of respondeat superior legally holds the defendant vicariously responsible or a plaintiff may believe the primarily liable agent is more culpable than the secondarily liable party. Both the language of RCW 4.22.060(2) and principles of fairness cause this court to find that a plaintiff should not be deprived of a cause of action against a wrongdoer when the plaintiff has not intentionally surrendered the claim. Any fear of double recovery is unfounded because the amount paid under a release must be credited to the second tortfeasor. RCW 4.22.060(2). Grange argues that at common law the release of either a principal or an agent released the other. However, RCW 4.22.060 has changed this result. The statute is in accord with the approach recommended in the Restatement (Second) of Judgments wherein an injured party may pursue the agent after settling with a principal. Restatement (Second) of Judgments § 51, comment f (1982). It is therefore necessary to apply contract principles to the facts of this case. Parol evidence is inadmissible unless an ambiguity is found in a contract. McGary v. Westlake Investors, 99 Wn.2d 280, 286, 661 P.2d 971 (1983) (citing Poggi v. Tool Research & Eng'g Corp., 75 Wn.2d 356, 451 P.2d 296 (1969)). Whether a written instrument is ambiguous is a question of law for the court. McGary, at 285. We find the release unambiguous in that it merely releases Richard Goodman, d/b/a Dick's Exhaust, with no mention of the actual tortfeasor, Mr. Curtis. Furthermore, the statute is clear that a release does not discharge others "unless it so provides". RCW 4.22.060(2). Therefore, since release of a principal does not by operation of law release an agent and the release here does not show any intent to release the agent, it only operated to release the principal. This opinion is not inconsistent with the Bennett rule recently enunciated by this court. Bennett v. Shinoda Floral, Inc., 108 Wn.2d 386, 739 P.2d 648 (1987). Bennett held that the victims of injury are bound by releases executed when they knew they had been injured, but did not know *490 the extent or consequences of the injury. But the Bennett rule does not address the issue of whether a release of one tortfeasor operates to release a different potentially liable defendant. It is important to remember that the Bennett rule rests on a contract theory and is intended to protect the released, settling defendant who is a party to the contract. If the parties wish to avoid the need for a determination whether the plaintiff intended to settle with the agent, then the release can very simply be written to include the agent as a released party. The Court of Appeals is reversed and the case is remanded to the trial court. UTTER, BRACHTENBACH, DOLLIVER, DORE, and GOODLOE, JJ., concur. ANDERSEN, J., dissents. CALLOW, J. (dissenting) The majority holds that release of an employer from vicarious liability does not release the primarily liable employee absent a trial court determination that the settlement was reasonable. The majority then states that the Vanderpools sued seeking rescission of the release, a judgment for personal injuries and property damage. The inconsistency of the majority immediately becomes apparent because it is the position of the majority that the release was a release only of the insurance company's responsibility to the principal and that the employee was not affected by the signed release. The majority goes on to state that the issue was whether the release of the principal prior to the filing of a lawsuit, where the injured party is unrepresented by counsel, also releases the responsible agent who caused the injury. The majority holds that under the tort reform act settlement with a principal does not release the primarily liable agent before a trial court judge determines that the settlement was reasonable and satisfied the injured party's claim against the agent and principal. The majority holds that there can be no settlement unless *491 the injured party is represented by counsel, an action is filed and a settlement hearing has determined that the amount paid by the principal is reasonable. The majority ignores the fact that the claimant was dealing with an insurance company that was acting for both principal and agent for the single tort. The majority also ignores the fact that the claimant greatly sought and desired the settlement and now seeks further relief claiming previously undiscovered injury. Thus, we have the majority requiring, even though an injured party was not misled or defrauded, sought the release, acted on the advice of an insurance adjuster who was her friend, and accepted payment as payment in full for all present and future injury based upon the evaluation of her own doctor, that nonetheless a lawyer was required, the action had to be filed and a settlement hearing held to protect the injured party from her own mistake. It is hard to imagine an approach with more potential to (1) increase the cost of insurance, (2) involve counsel in every settlement, and (3) clog the courts with unneeded hearings. A few words need to be said about the facts. The Court of Appeals in its unpublished opinion stated: The Court of Appeals also stated, correctly, I submit: The claimant petitioned this court for review of one limited issue: It is interesting to note, in passing, that the majority and the claimant do not realize the inconsistency of their position. The claimant sued to rescind the release. The release, on its face, released the employer. They do not challenge the release of the employer, save to claim that it was unreasonable, so that now they can claim the release to be invalid as against the employee. If the release was good only against the employer, there would be no need to rescind it, but only to proceed against the employee. By seeking to rescind the release, the claimants inadvertently acknowledge that they signed the release as a release of all concerned both the master and the servant. The majority treats the doctrine of vicarious liability, joint and several liability, and contribution, as if it made no difference which doctrine was involved insofar as the disposition of this case was concerned. Not so. Vicarious liability is the imposition of responsibility on a master for the wrongful act of a servant because of the relationship between the master and servant; the servant acting for the master and the master therefore being held for the wrong of the servant. Responsibility is imputed to the master-employer because the servant-employee injured another while acting for the master. Only one tortfeasor is involved and the master is held under the doctrine of respondeat superior. See W. Keeton, D. Dobbs, R. Keeton & D. Owen, Prosser and Keeton on Torts § 69, at 458 (5th ed. 1984). When vicarious liability is involved, as here, the *494 master has not personally caused any injury, but is responsible for the single injury caused by the servant. Thus, to look to both master and servant for recovery when recovery has been accepted from one or the other as payment in full is to allow, as does the majority, two bites of the apple. Joint and several liability tort actions come about if two or more persons proximately cause an injury. The law imposes liability on each tortfeasor for the total injury to the victim. We are faced with the problem of the correct interpretation of the holding in Glover v. Tacoma Gen. Hosp., 98 Wn.2d 708, 658 P.2d 1230 (1983). The court stated that under the facts of that case the trial judge should have dismissed the vicarious liability claim after approving a reasonable settlement between the agent and the principal. The court stated that Washington cases established two propositions: first, if the injured party chooses to seek redress from the agent, the election of remedy bars further action against the principal, and secondly, that a principal's liability may be discharged if a judgment in favor of the agent is on the merits. In essence, the court held that the discharge of a principal is discharge of an agent if settlement from one or the other is accepted in full since there is but one tortfeasor and the law simply protects the victim by allowing the victim to proceed against one or the other or both, but not to seek recovery of more than one's total damages. As aptly stated in Glover: Glover, at 722-23. I submit that the same policy considerations exist here where the principal settled with the injured party and the injured party accepted payment for the single impact from the principal who agreed to pay on behalf on the agent-tortfeasor. The holding in Glover does not depend upon the holding or failure to hold a "reasonableness hearing". The disposition is based upon the sensible rationale that acceptance of payment as payment in full from the plaintiff's selected target of either the master or the servant discharges the liability. Glover noted that a release as to an agent should release the principal unless a claimant has settled with an agent who is financially unable to fully compensate the plaintiff. Glover, at 723-24. The rationale behind that rule is not changed when it is the principal who accepts a release for full compensation for the agent's wrong nor is the rationale behind the rule changed by the provisions of RCW 4.22.030-.060. Further, in Glover, the multiple tortfeasors were already involved in a lawsuit, which was not the case here. The Glover decision followed by some 2 years the adoption of the present form of RCW 4.22.030-.060. It noted the difference between vicarious liability and respondeat superior and the contribution rules set forth by those sections as they concern themselves with joint and several liability among joint tortfeasors. Glover, at 722, says plainly: "This situation is unlike that created by joint tortfeasor claims." *496 Glover notes that the adoption of RCW 4.22.030-.060 does not change the fact that the injured party can seek recovery from either the agent or the principal or both, but once having accepted payment from one cannot continue to use the existence of the other as either an excuse to reopen a claim or to seek additional damages. The ruling in Glover is not contrary to the provision of RCW 4.22.030 that if more than one person is liable to a claimant on an individual claim for the same injury, the liability of such persons is joint and several. Glover recognizes that insofar as vicarious liability situations are concerned, we have not abandoned the rule as stated in Johns v. Hake, 15 Wn.2d 651, 131 P.2d 933 (1942) that the release of the master releases the servant (and vice versa), the liability of the master being derivative. In fact, Johns v. Hake, supra at 656, stated: In other words, the policy of the law is for (a) full compensation, (b) an election of remedies, and (c) when settlement in full is made by one, it is settlement for both. This court has just held in Bennett v. Shinoda Floral, Inc., 108 Wn.2d 386, 739 P.2d 648 (1987) that the victims of injury are bound as a matter of law by releases executed when they knew they had been injured, but did not know the extent or consequences of the injury. In discussing Finch v. Carlton, 84 Wn.2d 140, 524 P.2d 898 (1974), in the light of other cases which have discussed the binding nature of releases, to wit: Beaver v. Estate of Harris, 67 Wn.2d 621, 409 P.2d 143 (1965); Pepper v. Evanson, 70 Wn.2d 309, 422 P.2d 817 (1967), we stated that we recognized that the Finch case was unlike prior cases because it involved "`a situation where the parties presumably did not contemplate the possibility of latent injuries.'" We limited Finch *497 to those facts and concluded that a release may be avoided "`where later-discovered injuries were clearly not contemplated by the parties at the time of release.'" Bennett, at 393. We concluded: Bennett, at 395-96. And finally we pointed out that while a contract is voidable on grounds of mutual mistake, it is not so voidable by the party seeking to set it aside if that party bore the risk of mistake by being aware at the time the contract was made that he had only limited knowledge with respect to the fact to which the mistake relates, but treated that limited knowledge as sufficient. This is exactly the case before us where the claimant chose to bear the risk of uncertainty. In addition, I note that the majority states that the "pivotal inquiry is whether the parties to the release intended to release both the principal and the agent." It appears clear to me that the claimant signed the release intending to take payment as payment in full, to close the matter and to release all involved. It also seems obvious that only when the claimant wanted more and secured counsel to find ways to void the release that the concept of a divisible target came to mind. In Monjay v. Evergreen Sch. Dist. 114, 13 Wn. App. 654, 537 P.2d 825 (1975), Justice Pearson, then speaking for the Court of Appeals, stated: (Footnote omitted.) Monjay, at 658-59. A footnote to that case observed that while it was the common law rule that a release of one joint tortfeasor released all, courts have not *499 applied the rule when it was clear that the parties intended otherwise. Likewise in Woods v. Gamache, 14 Wn. App. 685, 544 P.2d 144 (1975), in an opinion authored by Judge McInturff, a release discharged the defendants from further liability for injuries whether the injuries were known or unknown. It was pointed out that the law favors the amicable settlement of claims when settlement is secured without fraud, misrepresentation or overreaching. We must inquire whether the rule we have just announced is somehow changed by RCW 4.22.060 which reads: In discussing this section and effect, we find in Senate Journal, 47th Legislature (1981), at 636-37, the following section from the section by section analysis of the draft bill, said analysis having been placed into the Senate Journal by the Senate Select Committee on Tort and Product Liability Reform. Section 14. Effect of Release I note that the reasonableness of the release is to depend upon the provable liability of the released parties (not contested here) and the limits of liability in the released party's insurance (there was no question of exceeding the policy limits). I submit that the scheme adopted by RCW 4.22.030-.060 contemplated the settlement of filed lawsuits involving joint tortfeasors where contribution claims could be expected but did not intend to require a different result than that later reached by Glover v. Tacoma Gen. Hosp., supra, or require reasonableness hearings whenever a master was vicariously liable for the tort of his servant and no action had been filed. The majority in actuality has silently overturned the rationale of Glover. A careful reading of RCW 4.22.060 and the Senate Journal analysis shows that the Legislature contemplated at all times joint tortfeasors, not vicariously liable principals. The statute and its analysis also reflect that the legislative concern was with favoritism to one joint tortfeasor as against another and with the problems of contribution between joint or concurrent tortfeasors considerations which are not present here. While the statute states that the release shall not release others liable on the same claim unless it so provides, the statute is referring to joint tortfeasors who have a liability for contribution and not an agent's liability *502 to a claimant where that liability has been satisfied by the principal. It is a basic concept that an injured victim will be compensated in full, no more, no less. It is essential that we recognize the difference between joint and several liability where a number of tortfeasors may have contributed to the injury to the victim and vicarious liability where there has been one tortfeasor (an agent of the principal) who has injured the victim, but only one tortfeasor who can be said to be at fault. Under the concept of vicarious liability the law looks upon the principal as being responsible for the acts of his agent, the master as being responsible for the acts of his servant, and holds that since the master has been benefited by the activity of the servant, the master should be responsible if the servant injures another. This does not absolve the acting servant agent who actually inflicted the harm from liability if the victim is not properly compensated. However, if the victim is compensated by the master and accepts that compensation as payment in full, the servant is absolved of responsibility. And, in real life, as in this case, if the injured party is dealing with an insurance company whose policy covers both, the solvency of agent or principal is immaterial. If the agent has fully compensated the injured party who has accepted payment as payment in full, the injured party cannot then look to the principal for further compensation since the victim has been paid in full and has accepted such payment for his injury by executing a release. See Glover v. Tacoma Gen. Hosp., 98 Wn.2d 708, 658 P.2d 1230 (1983). The concept of vicarious liability seeks to place responsibility on both the principal and the agent, but does not seek to compensate the victim more than once, and if payment is made by either the master (as in this case) and accepted as payment in full by the injured party, or if payment is made by the agent (as in Glover) and payment is accepted as payment in full by the injured party, then the servant in the first instance or the master in the second is discharged. The *503 rules that apply to vicarious liability have not been changed by the statute. Where the liability of the master for the tort of the servant is based solely on the doctrine of respondeat superior, the master and servant are not joint tortfeasors (though they have a joint and several liability under RCW 4.22.030) and the valid release of either party operates to release the other. Gavin v. Malherbe, 264 N.Y. 403, 191 N.E. 486 (1934); Hartigan v. Dixon, 81 Minn. 284, 83 N.W. 1091 (1900); Spradley v. McCracken, 505 S.W.2d 955 (Tex. Civ. App. 1974); Craven v. Lawson, 534 S.W.2d 653 (Tenn. 1976); Annot., Release of (or Covenant Not To Sue) Master or Principal as Affecting Liability of Servant or Agent for Tort, or Vice Versa, 92 A.L.R.2d 533 (1963); 53 Am.Jur.2d Master and Servant § 408, at 416 (1963). As stated in Sade v. Hemstrom, 205 Kan. 514, 525, 471 P.2d 340 (1970): See also Lincoln v. Gupta, 142 Mich. App. 615, 370 N.W.2d 312 (1985); Ericksen v. Pearson, 211 Neb. 466, 319 N.W.2d 76 (1982); Horejsi v. Anderson, 353 N.W.2d 316 (N.D. 1984). The majority indicates that, in a situation such as this where a settlement has been entered into prior to any lawsuit being filed, nonetheless the provisions of RCW 4.22.030-.060 require that a reasonableness hearing be held. The result of the majority is to require insurance companies *504 to file actions and have reasonableness hearings conducted where the relationship of principal and agent is unclear or where the possibility of involvement in the cause of an injury by other employees is present. As noted by the insurance company's brief it is indeed ironic that the claimant can now proceed against the insurance company under the same policy that brought it into the situation in the first place. It is also ironic and illogical that a release having been given to the company's adjuster for full payment for the claim, that the company is not released. Obviously the claimant would not pursue the agent in the absence of the solvent insurance company. This means that in any such situation no settlement could be entered into safely unless (1) the release carefully named each and every possible master and servant who might have been involved or (2) an action was filed and a court had held a time-consuming hearing to rubber stamp that which both plaintiff and defendant desired and had agreed upon as being fair and equitable. DURHAM, J., concurs with CALLOW, J.