Opinion ID: 2518592
Heading Depth: 2
Heading Rank: 3

Heading: The Settlement And Proceedings Before The Circuit Court

Text: Through mediation with retired circuit court judge E. John McConnell, Thomas and Kim and their insurers, Zane, and DaimlerChrysler reached a settlement, under the terms of which DaimlerChrysler contributed $200,000.00, Kim contributed her BI limit of $100,000.00, and Thomas contributed his BI limit of $1,350,000.00; furthermore, under a prior settlement agreement, Zane's parents' insurer, AIG Hawai`i Insurance Company, Inc. (AIG), contributed $40,000.00. [3] Thus, Zane recovered a total of $1,690,000.00. Id. The parties readily agree that the total value of Zane's injuries would exceed $1,690,000.00. At some point, Zane applied for UIM benefits representing the difference between $1,690,000.00 and her actual damages. As both parties agree, Liberty Mutual initially accepted coverage, but then refused to tender [UIM] benefits on the theory that `it appear[ed] that . . . Kim,' i.e., the driver of the other car and, hence, the underinsured motorist from Zane's perspective, [4] `was not negligent for the bodily injuries sustained by . . . Zane.' Liberty Mutual having denied her claim, Zane initiated the present matter, seeking a declaratory judgment in the circuit court that she was entitled to UIM benefits as Thomas's passenger. Id. The parties agree that Liberty Mutual gave prior consent to the act of settling with DaimlerChrysler and its codefendants, but disagree as to whether Liberty Mutual also represented to Zane that it understood and either agreed or did not dispute that DaimlerChrysler's limitless self-insurance [5] would be excluded from the calculation of the Taylor gap, i.e., that Liberty Mutual would compensate Zane for her damages exceeding the settlement amount without regard to DaimlerChrysler's infinite BI self-insurance coverage. The manner by which Zane communicated the terms and circumstances of the settlement, Liberty Mutual's understanding thereof, and its representations, if any, to Zane, determine whether Liberty Mutual was estopped from deducting the value of the Taylor gap, inclusive of DaimlerChrysler's unlimited BI self-insurance, from Zane's UIM benefits. See discussion infra section III.B.
In her May 8, 2002 complaint, Zane averred, inter alia, as follows: 13. . . . Liberty Mutual inquired about the terms of the DaimlerChrysler settlement. On December 20, 2001 Liberty Mutual senior claim specialist[] Colin M. Chang . . . was informed that the DaimlerChrysler contribution was . . . $200,000. 14. Liberty Mutual thereupon gave its verbal approval of the [BI] liability settlement and thereafter confirmed . . . by letter dated December 20, 2001 that we . . . do not object to [Zane] resolving her [BI] liability claims against the liable parties. 15. Liberty Mutual also requested a copy of the DaimlerChrysler Release for its files on January 7, 2002. Zane advised Liberty Mutual that the formal settlement agreement was not yet finalized and thereafter forwarded a copy of the finalized and signed release. . . . . 26. Liberty Mutual consented to the liability settlement with DaimlerChrysler and may not now object to that settlement as a basis for denying [UIM] benefits. (Emphases added.) Zane prayed for [a] declaration of the rights and obligations of the parties under the Liberty Mutual policy and [a] declaration that Liberty Mutual must provide [UIM] coverage to Zane. [6] On May 20, 2002, Liberty Mutual removed the present matter to the United States District Court for the District of Hawai`i. On May 21, 2002, in the United States District Court, Liberty Mutual filed its answer to Zane's complaint and appended its own counterclaim. In its answer and its responsive pretrial statement, Liberty Mutual admitted the averments in Zane's complaint, set forth supra, with the exception of the boldface language. Liberty Mutual also conceded in its responsive pretrial statement that it consented to the liability settlement with DaimlerChrysler and may not now object to that settlement as a basis for denying [UIM] benefits. (Emphases added.) On June 28, 2002, in the United States District Court, Liberty Mutual filed an amended counterclaim against Zane in which it alleged in relevant part that DaimlerChrysler's self-insurance should completely offset Zane's claim for UIM benefits: [Liberty Mutual] is entitled to a credit for the total limits of any and all [BI] liability insurance and self-insurance available to satisfy [Zane]'s claims . . . and the total amount of such limits exceeds the amount of damages . . .; [and] . . . [Liberty Mutual] is entitled to a credit for the total amount of settlement proceeds paid for the benefit of [Zane] in connection with [her] claims. . . . [ [7] ] Liberty Mutual prayed for a declaratory judgment that [Zane] is not entitled to . . . []UIM . . . benefits from [Liberty Mutual]. The United States District Court remanded the case to the state circuit court on October 31, 2002. On May 16, 2003, both parties moved for summary judgment. In her motion, Zane characterized DaimlerChrysler's settlement amount as nuisance value and argued that, inasmuch as [n]either [she], Liberty Mutual nor State Farm were able to develop a viable product liability claim against DaimlerChrysler, DaimlerChrysler was not an actual responsible tortfeasor[] and its insurance or self-insurance did not constitute an  applicable [BI] liability . . . policy to be exhausted before payment of UIM benefits. (Emphasis in original.) (Internal quotation signals omitted.) (Quoting Taylor, 90 Hawai`i at 313, 978 P.2d at 751; Dizol, 176 F.Supp.2d at 1027, 1030, 1033; Mulholland v. State Farm Mut. Auto. Ins. Co., 171 Ill. App.3d 600, 122 Ill.Dec. 657, 527 N.E.2d 29, 35-36 (1988); Arenson v. Am. Reliance Ins. Co., 284 N.J.Super. 337, 665 A.2d 394, 397 (1994); Colonial Penn Ins. Co. v. Salti, 84 A.D.2d 350, 446 N.Y.S.2d 77, 80-81 (1982).) (Citing Tate v. Secura Ins., 587 N.E.2d 665 (Ind.1992).) In her May 27, 2003 memorandum in opposition to Liberty Mutual's motion for summary judgment, Zane contended that Liberty Mutual's consent to the settlement reflected not only its willingness to waive any subrogation rights against DaimlerChrysler, but also its understanding that DaimlerChrysler's settlement amount was merely nuisance value and that its self-insurance would not be available to offset Zane's UIM claim. Zane attached to her memorandum in opposition (1) affidavits by her attorneys Keith K.H. Young, Denise K.H. Kawatachi, and Bert S. Sakuda, and (2) the various exhibits that they purported to authenticate. Young averred that he had spoke[n] to Chang and fully advised Liberty Mutual of the facts of the settlement, circumstances requiring abandonment of the product liability claim for a nuisance value settlement of $200,000 approximating . . . defense costs, the reasons[ [8] ] that no viable product liability claim existed, and requested consent to the liability settlement without prejudicing Zane's right to payment of UIM benefits. [Chang] acknowledged understanding the situation and extended Liberty Mutual's consent to settlement of the liability claims as discussed without prejudicing Zane's right to payment of UIM benefits. . . . [I]t was understood that Liberty Mutual would continue processing Zane's request for UIM benefits (which had already been requested) on the merits given Liberty Mutual's consent to the liability settlement. (Emphases added.) Young further attested that, [u]p until the time Zane finalized the . . . settlement . . . on March 8, 2002, communications to and from Liberty Mutual were all premised on the understanding that Zane's UIM claim was being processed without any claim that Liberty Mutual did not owe UIM benefits because of the failure to exhaust DaimlerChrysler's policy limits. Had Liberty Mutual reneged on its consent and denied benefits . . . at any time . . ., he [sic] would not have proceeded with the liability settlement. The attached Exhibit 1 appears to be Chang's January 30, 2002 letter to Kawatachi, implying his awareness of the impending settlement. In Liberty Mutual's May 27, 2003 memorandum in opposition and its own cross-motion, it argued that: (1) by virtue of DaimlerChrysler's posture as a settling defendant, Liberty Mutual was entitled to the Taylor offset in the amount of DaimlerChrysler's unlimited BI self-insurance (a) regardless of Liberty Mutual's consent and (b) regardless of whether DaimlerChrysler's compromise reflected mere nuisance value; and (2) in any case, DaimlerChrysler's $200,000.00 settlement cannot be reasonably described as a `nuisance value.' (Citing, e.g., Taylor, 90 Hawai`i at 313-14, 978 P.2d at 751-52; Dizol, 176 F.Supp.2d at 1027-33.) Furthermore, in its May 30, 2003 reply to Zane's memorandum in opposition, Liberty Mutual challenged Zane's characterization of the communications between the parties. Liberty Mutual countered that Zane was aware that it planned to rely on the Taylor rule to offset her UIM claim, inasmuch as it did, in fact, communicate the Dizol . . . case to [Zane's] counsel's attention as early as January 8, 2002. Liberty Mutual continued: [Zane] can point to no affirmative representation or conduct by Liberty Mutual specifically indicating that such an offset or credit would not apply and any reliance by [Zane] upon the absence of such a representation or affirmative conduct would have been unreasonable. . . . . . . . . . . More importantly, . . . [d]uring a January 8, 2002 telephone conversation between . . . Chang and . . . Kawatachi . . . with regard to . . . Zane's UIM claim, [Chang] specifically told . . . Kawatachi that [the] offset discussed in . . . Dizol . . . may be applicable to [Zane]'s claim and . . . Kawatachi said . . . that she would look at . . . Dizol and get back to [him], but never did. . . . [Zane] did not finalize her settlement with DaimlerChrysler . . . until March 8, 2002. . . . (Some emphases added and some in original.) (Some capitalization omitted.) Liberty Mutual cited the attached declaration of Chang, which, indeed, propounded that he spoke with Kawatachi on January 8, 2002 and informed her that [the] offset discussed in . . . Dizol . . . may be applicable to . . . Z[ane]'s claim.
At the circuit court's June 4, 2003 hearing, Zane conceded the general principle of the Taylor rule, see supra note 2; however, she urged that DaimlerChrysler was not an actual tortfeasor in light of the nuisance value of its settlement payment and that, consequently, its self-insurance was not applicable, see HRS § 431:10C-103, supra note 1, to the Taylor offset: [ZANE:] . . . Taylor held that a credit is due the [UIM] carrier for the difference in the amount of the settlement paid and the policy limits of the [UIM] tort[]feasor. . . . And we don't have a problem with that. . . . But what is a tort[]feasor? A tort[]feasor is . . . and this is a definition out of Black[']s [Law Dictionary]a wrongdoer, an individual or a business that commits or is guilty of a tort. Now, . . . [n]one of the parties here could establish any wrongdoing or a tort that [Daimler]Chrysler was guilty of. . . . . And none of those parties could develop a viable product liability claim against [Daimler]Chrysler. And that is undisputed. . . . Therefore, [Daimler]Chrysler was not a tort[]feasor. And not being a tort[]feasor, Taylor simply doesn't apply when it speaks of a credit that's due for the policy limits. . . . . . . . . . . Vassiliu [v. Daimler Chrysler Corp., 356 N.J.Super. 447, 813 A.2d 547 (2002), rev'd in part on other grounds, 178 N.J. 286, 839 A.2d 863 (2004),] . . . discuss[ed] the situation where . . . a party has no liability[.] And . . . when you speak of available insurance, you speak of available insurance for . . . actual, responsible tort[]feasors, as opposed to parties that don't have liability or responsibility. . . . Mulholl [and ] comes to the same conclusion, that when you talk about a credit, you are talking about a credit against an actual tort[]feasor.[ [9] ] And Mulholl [and ] actually discusses . . . the situation where a plaintiff files suit initially against everybody that might be involved. . . . [A]s the case goes on and it is determined that there is no liability against certain parties, . . . . . . that's okay. . . . Because the alternative . . . is that the plaintiff only sues the most liable one. And the UIM carrier then loses its subrogation rights against all the other potential tort[]feasors. . . . By suing everyone initially, . . . the plaintiff actually ends up protecting the subrogation rights of the UIM carrier against all potential tort[]feasors. And then . . ., you sort out the liability. . . . THE COURT: . . . Are you saying that you have to have a judgment? [ZANE]: No. . . . . . . . [I]ssues of liability . . . are under UIM policies the subject of arbitration. . . . So . . . if the parties disagree whether the compromise was due to just simply wanting to forgo the expenses of litigation, or whether it was a liability question, that would be an issue for arbitration. Although I think in most cases that becomes pretty obvious. Where you sav[e] 5,000 [dollars] off the policy, . . . that's being done for convenience. Where you tak[e] five percent of the policy, . . . obviously there are some liability questions. Zane then broached the issue of Liberty Mutual's representations, if any, concerning its intention to forgo the Taylor credit: In this case, [Zane] ha[s] from day one been very specific about what was consented to. Full disclosure was made to Liberty Mutual that this is a situation of no liability. . . . We were taking $200,000. And to make sure we didn't get in that Taylor bind of then not being able to collect, we simply went to [Liberty Mutual] and said look, this is the situation. We want your consent to this, so that we can proceed with the UIM claim. . . . . . . . [I]n [its] reply memorandum Liberty Mutual has attached the declaration of the adjuster himself who participated throughout the entire proceeding. . . . . . . [It] says only that sometime in January he talked to . . . [Zane]'s lawyer and brought up the Dizol case. . . . . . . And what's really telling about this affidavit is not what it says, but what it doesn't say. This affidavit doesn't say no, I never agreed with [Zane]'s lawyer when he called me in [sic] December 20th . . . that this settlement was for nuisance value. . . . (Emphases added.) Liberty Mutual responded that DaimlerChrysler is a joint tort[]feasor. . . . [U]nder our [U]niform [C]ontribution [A]mong [T]ortfeasors [A]ct[, HRS ch. 663, pt. II (Supp.1999) (UCATA), [10] ] it's not necessary that a judgment or . . . a[n] ultimate finding of liability be made in order for a party to be determined to be a joint tort[]feasor. . . . . . . . [T]he parties reached a settlement in the amount of $200,000. . . . But . . . reasonably speaking it cannot be determined that a $200,000 settlement is a nuisance value settlement. . . . . . . . The injuries in this case were indeed high. But nuisance value does not depend necessarily on the injuries. . . . [N]uisance value is a case in which there is no liability and the defendant merely throws some money on the table. In other words, notwithstanding the finding of liability. [sic presumably, notwithstanding the lack of a finding of liability] And . . . in this case the amount of the settlement, as well as the fact of the settlement itself, confirm[] DaimlerChrysler's position as a joint tort[]feasor. . . . . . . . [F]or example, . . . in [ Gump v. Wal-Mart Stores, 93 Hawai`i 417, 5 P.3d 407 (2000)], M[]cDonald's, the settling defendant, was considered to be a joint tort[]feasor, even though there was no ultimate finding of liability. . . . . . . [T]hey did make a settlement. And in the Court's view that confirmed their status as a joint tort[]feasor. . . . [U]nder HRS[ §] 663-11[ [11] ] the definition of a joint tort[]feasor again does not turn on the ultimate finding of liability or nonliability. What it basically states is that a party can be deemed to be a joint tort[]feasor, whether or not judgment is recovered against all or some of the tort[]feasors in the case. . . . . . . . [Zane] did request that Liberty Mutual consent. That's undisputed. It is undisputed that Liberty Mutual consented to the settlement. . . . . . . . The reason why we attached [Chang's declaration to our May 30, 2003 reply] . . . is that in [her May 27, 2003] memorandum in opposition what [Zane] was arguing . . . was that [she] didn't know about this [( i.e., the Taylor/Dizol rule )] before they finalized the settlement. . . . Liberty Mutual was not required to advise them of the applicable law. . . . . . . . If [Zane] is [making an estoppel claim], . . . it's simply not supported on the record before the Court. And any reliance by [Zane]for one thing, there was no representation made by . . . Chang that he would not be asserting a credit. Silence cannot create an estoppel. And . . . any reliance upon that wouldn't. . . . . . . . Under Taylor [it] is simply not our place to object to the settlement. And Taylor strongly advises [UIM] insurers to consent to settlement. And we did that in this case. . . . [B]ut . . . it would be counter-intuitive . . . to suggest that every time a[UIM] insurer consents to a settlement[,] . . . that would foreclose it from asserting the credit and the offset[]. . . . . . . . . . . I believe that [ Taylor ] did everything but sa[y] that you have to consent. But I think what they were trying to do again is to encourage [UIM] insurers to consent, so that they would not get in the way of an underlying [BI] settlement. (Emphases added.) Liberty Mutual emphasized that the Taylor credit i.e., the insured's waiver of the difference between the settlement amount and the applicable BI limits applies irrespective of whether or not [the insurer's] consent is obtained. . . . [B]ecause that's the exact thing that they were trying to encourage by giving the carriers the credit on the back hand. And what they wanted to tell the carrier is there is no reason for you not to continue as long as you get the credit on the back hand. . . . It is undisputed that Liberty Mutual consented to the settlement. . . . Our only point is that we should be entitled to the full credit . . . under . . . Dizol . . . . Nevertheless, the circuit court ruled that the purpose of getting the consent, which was made known to Liberty Mutual, was so that the credit would not kick in. And no one's argued to the Court, and the Court does not find, that even if you are entitled to the credit that you can't give it up. And the Court finds that they did. . . . [U]nder the peculiar, undisputed facts of this, the consent constituted not only a consent but also a waiver of any claim to a credit beyond the 200,000[ dollars]. Accordingly, the circuit court granted summary judgment in Zane's favor and against Liberty Mutual: Liberty Mutual would have been entitled to a credit for joint tortfeasor DaimlerChrysler . . ., in connection with the underlying accident, but, having consented to the liability settlement with DaimlerChrysler, Liberty Mutual may not now object to that settlement as a basis for denying [UIM] benefits, and . . . may not now claim said credit and[,] accordingly, the Court grants . . . Zane's Motion for Summary Judgment and denies . . . Liberty Mutual's Motion for Summary Judgment. Issues relating to the liability of . . . Kim or . . . Zane's damages may be submitted to arbitration . The circuit court's April 25, 2005 judgment effectively ordered Liberty Mutual to provide full . . . UIM[] coverage benefits to Zane, without any credit/offset for . . . self-insurance applicable to . . . DaimlerChrysler[]. See op. at 963-64.