Opinion ID: 2585591
Heading Depth: 1
Heading Rank: 4

Heading: Settlement Setoffs

Text: Following the Phase II trial, CU moved to set off settlement funds received by Weyerhaeuser from other insurance carriers against the Phase I and Phase II jury verdicts. CU attempted to show the settlement funds received by Weyerhaeuser were sufficient to pay all proven and covered damages at the Phase I, II, III and other released sites, plus collateral claims for attorneys' fees and statutory interest, with over $5,000,000 remaining. The trial court denied CU's motion (CP at 11128-29) [8] and orally ruled: THE COURT: Based upon the materials that I have reviewed and upon the oral argument presented, I am prepared to rule in the following way: I am denying CU's motion. The reason I am denying CU's motion is that I believe that they have not met the requirements of the Pederson Farms [sic] [ Pederson's Fryer Farms, Inc. v. Transamerica Ins. Co., 83 Wash.App. 432, 922 P.2d 126 (1996)] case; that in order to meet the requirements of Pederson Farms in a civil standard, they have to show by a preponderance of the evidence that there has been double recovery here. Given the facts that we have before us, the form that the releases come in, the multiplicity of the claims and the parties, it is impossible to be able to sort that out at this point and for the court to say affirmatively that Commercial Union has demonstrated that Weyerhaeuser has been made whole. RP at 4611. In support of its claimed entitlement to offset other settlement funds received by Weyerhaeuser, CU argues, A fundamental rule of damages prohibits multiple recovery. Revised Br. of Appellant at 36 (citing Monjay v. Evergreen Sch. Dist. No. 114, 13 Wash.App. 654, 658, 537 P.2d 825 (1975)). Weyerhaeuser demurs: All parties agree that `double recovery' should not be permitted. Br. of Resp't/Cross-Appellant at 28. But even assuming the existence of a general rule barring double recovery absent policy language to that effect, the insured must first be fully compensated for its loss before any setoff is ever allowed. See Thiringer v. Am. Motors Ins. Co., 91 Wash.2d 215, 219-20, 588 P.2d 191 (1978). CU relies upon contractual language that requires it ` to indemnify the Assured for all sums which the insured shall be obligated to pay.' Revised Br. of Appellant at 36 (quoting Pl.'s Trial Ex. 3 at WEY0 000551) (italics added). [9] Indemnification, according to CU, means to make whole; it does not mean an insured is entitled to double recovery. See also Securities Serv., Inc. v. Transamerica Title Ins. Co., 20 Wash.App. 664, 669, 583 P.2d 1217 (1978) (to indemnify is to reimburse for any loss). Even accepting CU's legal argument, we must first decide which party carries the burden of proving a double recovery where an insured has received general releases from other insurers. Amicus Lloyd's of London asks this court to reject the Court of Appeals decision in Pederson's Fryer Farms, Inc. v. Transamerica Ins. Co., 83 Wash.App. 432, 451-52, 922 P.2d 126 (1996), which places the burden upon the insurance company seeking the setoff to prove a double recovery. In Pederson's the court was faced with a substantially similar, albeit less complex, situation. The insured, Pederson's, sought to recover expenses incurred in cleaning up contamination from an underground gas tank. Pederson's Fryer Farms, 83 Wash. App. at 435, 922 P.2d 126. Pederson's settled with two insurers for $32,000. Id. at 436, 922 P.2d 126. Pederson's then prevailed in a suit for cleanup costs from a third insurer, Transamerica. Id. Despite the principle of inappropriate double recovery and the policy's other insurance clause, the court held setoff was not allowed. The settlement, however, was not mere payment for Pederson's cleanup costs; it was in exchange for a release of liability for all past, present and future environmental claims. Transamerica did not demonstrate what part, if any, of the settlement was attributable to cleanup costs. Thus, no showing of double recovery was made. The trial court acted appropriately by not reducing the award. Id. at 452, 922 P.2d 126. As Weyerhaeuser correctly notes, the insurers that chose to settle in this case received far more than a imple release of liability at specific sites. Rather these companies also purchased certainty by avoiding the risks of an adverse trial outcome-not to mention forgoing the expenses associated with a lengthy trial and appeal. As the insurers paid Weyerhaeuser for a release from an unquantifiable basket of risks and considerations, Br. of Resp't/Cross-Appellant at 23, we cannot say the settlements simply constituted payment for Weyerhaeuser's cleanup costs. Further, the rule articulated by Pederson's is supported by Washington's strong public policy of encouraging settlements. Seafirst Ctr. Ltd. P'ship v. Erickson, 127 Wash.2d 355, 366, 898 P.2d 299 (1995). Were we to hold the insured bears the burden of proving it has not received a double recovery, such a rule would encourage litigation and reward the nonsettling insurer for refusing to settle. CU and amicus Lloyd's further argue whatever the efficacy of the Pederson's rule it cannot survive our more recent holding in B & L Trucking, which established joint and several liability for all insurers at risk during a time of ongoing damage, B & L Trucking & Constr. Co., 134 Wash.2d at 424, 951 P.2d 250, and ask us to apply tort principles and statutes governing contribution in tort cases to interpret an insurance contract. The only Washington case to have considered this issue has refused the invitation. Dash Point Vill. Assocs. v. Exxon Corp., 86 Wash.App. 596, 606-07, 937 P.2d 1148, 971 P.2d 57 (1997). Further, CU ignores the language in its own supplemental policy, which is dispositive. CU benefits from two exclusionary clauses in its contract that serve to limit its liability below a threshold in the nature of a deductible. See supra note 9. But CU tactically opted against arguing these clauses and did not provide this court with a sufficient record to review the applicability of the supplemental policy's other insurance clause. Id. In effect CU now seeks applicability of these exclusionary clauses under another name. The burden of showing entitlement to an exclusion of liability based upon the existence of other insurance is properly CU's. See Queen City Farms, Inc. v. Central National Ins. Co., 126 Wash.2d 50, 71, 882 P.2d 703 (1994) (noting insurer bears burden of proving applicability of exclusions from coverage); see also Kenneth S. Abraham, Environmental Liability Insurance Law 121 (1991) (where insurers are jointly and severally liable for environmental damages, [o]ther [i]nsurance clauses supply basis for apportionment). Having properly determined CU bears the burden of establishing a double recovery, we now address CU's contention it carried its burden and proved the settlement funds obtained from other insurers fully compensated Weyerhaeuser. We conclude it did not and agree the trial court's finding that Weyerhaeuser has not been made whole is supported by substantial evidence. See Price v. Kitsap Transit, 125 Wash.2d 456, 464, 886 P.2d 556 (1994). [10] Weyerhaeuser submitted evidence establishing its past costs alone greatly exceed the settlement funds received from other insurers. CP at 13411-13. CU failed to persuasively rebut these figures and, in fact, submitted the same evidence to the trial court. Although CU asserts it conclusively showed Weyerhaeuser had been made whole and, in fact, had $5,000,000 remaining, its citations to the record in support of this assertion are wholly inadequate. CU simply directs this court to its earlier trial memoranda and a 400 page declaration from counseldocuments consisting almost entirely of confidential settlement agreementswith no showing of how this evidence supports CU's allegations. Further, confidential settlement communications are inadmissible for purposes of establishing Weyerhaeuser's liabilities. See ER 408 (offers of compromise are inadmissible to prove the amount of a claim); see also 5A Karl B. Tegland, Washington Practice: Evidence Law and Practice § 408.1, at 48 (4th ed.1999) (offers of compromise are irrelevant because an offer to settle may be motivated solely by a desire to buy peace....). We affirm the trial court on this point and hold CU failed to carry its burden to demonstrate Weyerhaeuser has been fully compensated for its liabilities. Accordingly, we conclude the trial court properly denied CU's request to offset settlements received from other insurers.