Court Opinion

ID: 4712049
Source: CourtListenerOpinion
Date Created: 2021-08-12 00:37:47.172519+00
Date Added: 2024-06-11T08:07:11.684754
License: Public Domain

Sanders, J.
(concurring in part, dissenting in part) — I substantially agree with the majority’s disposition of the case subject, however, to two significant exceptions: (1) I would hold, as a matter of law, an insurer who sleeps on its right to buy out a claim cannot later show it has been prejudiced by a settlement of that claim; and (2), given that the insureds have prevailed on a coverage issue, I would hold the insureds are entitled to recover reasonable attorney fees pursuant to Olympic Steamship Co. v. Centennial Insurance Co., 117 Wn.2d 37, 52-53, 811 P.2d 673 (1991).

I. Breach of Tentative Settlement Clause

I agree with the majority that the insureds may have breached the tentative settlement clause found in the underinsured (UIM) coverage section of their policy. This clause provides, under the heading “ADDITIONAL DUTIES”:
A person seeking Underinsured Motorists Coverage must also:
....
3. Promptly notify us of a tentative settlement between the “insured” and the insurer of the “underinsured motor vehicle” and allow us a reasonable time to advance payment to that “insured” in an amount equal to the tentative settlement to preserve our rights against the insurer, owner or operator of such “underinsured motor vehicle.”
Clerk’s Papers at 96.
Although the facts indicate the insureds and the tortfeasor arrived at a settlement on the courthouse steps wherein the UIM insureds executed a release of all claims against the tortfeasor in consideration of a $35,000 payment without prior notice to the UIM insurer of the terms and conditions of the tentative settlement, the facts also demonstrate the UIM insurer was specifically aware of the pending litigation between its insureds and the tortfeasor, yet did nothing. Liberty Mutual made no effort to buy out the insureds’ claim against the tortfeasor for the tortfeasor’s liability limits of $50,000, or for any other amount. Accordingly we do not have the situation where the *26insureds declined an offer from their own insurance company made pursuant to Hamilton v. Farmers Insurance Co., 107 Wn.2d 721, 733 P.2d 213 (1987) to buy out the insureds’ right to proceed against the tortfeasor.
Given these facts, the majority holds that although the insureds technically breached the tentative settlement clause of their policy that would not in itself defeat coverage. I assume that this would at most entitle the insurer to offset sums otherwise due to its insureds under UIM coverage to compensate it for the prejudice, if any, incurred as a result of the provision’s breach. My fundamental disagreement is with the proposition that prejudice is theoretically possible absent a refusal of a UIM insured to sell its cause of action against the tortfeasor for policy limits.
Although Hamilton says the underinsurer “may secure its subrogation rights by substituting a payment to the insured in an amount equal to the settlement offer,” in the context of Hamilton the settlement offer was payment of the full amount of the liability limits in exchange for a release of all claims. Hamilton, 107 Wn.2d at 734. The UIM insurer (Farmers) however instructed its insured not to settle on that basis because the insured would prejudice the ability of Farmers to recover from the tortfeasor’s assets in excess of the liability limits. The holding of Hamilton was that the clause upon which Farmers relied, granting it the right to veto such a settlement, was void as against public policy. Later in the Hamilton opinion the court said one option available to Farmers would have been to “secure its subrogation rights by substituting a payment to the insured in an amount equal to the settlement offer.” Id.
However in Hamilton there was no settlement offer on the table which the UIM insurer was willing to accept because, if for no other reason, the offer was contingent upon a release of all claims. Rather the opportunity that Hamilton affords the insurer is the opportunity to buy out the cause of action against the tortfeasor, an opportunity which exists whether or not there is an offer on the table *27from the tortfeasor to settle the case for any particular amount of money.
The difference between this case and Hamilton is here the UIM insurer had the opportunity to offer to buy out Tripps’s claim against the tortfeasor for the tortfeasor’s limits of liability. That the tortfeasor had never made an offer to that effect doesn’t matter. As related above, this does not make any difference because the only reason a UIM insurer would buy out such a claim would be to preserve its rights to proceed against the tortfeasor to recover a collectible judgment against the tortfeasor sufficiently in excess of tortfeasor liability limits to repay itself all or a portion of its UIM payments to its insureds.
Here, however, Liberty Mutual could have offered to buy out Tripps’s claim against the tortfeasor for liability limits of $50,000 but did not. That the Tripps and the tortfeasor ultimately settled for $35,000 makes no difference in terms of prejudice under Hamilton because “the underinsurer always is allowed to credit the full amount of the tortfeasor’s liability coverage against the insured’s damages,” Hamilton, 107 Wn.2d at 728, before it has any responsibility to start paying UIM benefits in any event.
To put it another way, if Liberty Mutual did not offer to buy this claim for $50,000 either because (1) it believed the claim was worth less than $50,000 or (2) it believed there were no available assets in excess of $50,000 to be collected directly from the tortfeasor, then there would be no reason for Liberty Mutual to buy out the claim from its insureds for some amount under $50,000.
To illustrate: Let us suppose Liberty Mutual were given ample notice, opportunity, and actually elected to buy out the claim from its insureds against the tortfeasor for $35,000. This would mean Liberty Mutual would potentially have to take the case to trial, and obtain a collectible judgment of at least $35,000 plus all of its attorney fees to simply break even. But even if the trial court actually awarded judgment for $50,000 Liberty Mutual would not come out ahead because according to Hamilton, “[a]ny *28recovery over the amount of the substituted settlement payment must be applied first to any uncompensated damages of the injured insured. Only after the insured’s damages are fully compensated can the underinsurer retain any recovery.” Hamilton, 107 Wn.2d at 734.
As the majority concedes, the only way it would make sense for the UIM insurer to buy out the claim, therefore, would be the expectation that it would recover a collectible judgment against the tortfeasor for an amount substantially enough in excess of liability limits of $50,000 so it could start repaying itself UIM payments made to its insured (after fully recovering its additional litigation costs). Majority at 19. Only in such a situation would the UIM insurer begin to experience any “prejudice” from the insured’s unauthorized settlement and release of all claims. However there would be no possible prejudice to the UIM insurer if it declined to buy out the claim from its insured up to the limits of liability.
I therefore think logic requires if Liberty Mutual wants to claim prejudice it must prove it offered to buy out its insureds’ claim against the tortfeasor and that offer was rejected by its insureds. That did not happen here. Liberty never offered to buy out its insureds’ claim against the tortfeasor for any sum. Moreover I can conceive of no rational reason why the insureds would reject such an offer to pay tortfeasor liability limits, if made. Recall, by accepting such an offer the insureds could still obtain from their UIM carrier up to UIM policy limits above the buyout, here an additional $100,000 over the tortfeasor’s liability limits. Moreover if the insurer recovers sums in excess of that from the tortfeasor then, under Hamilton, it must turn those moneys over to its insureds as well.
Therefore I would affirm the Court of Appeals on the UIM issue except to the extent the Court of Appeals apparently set off $65,000 against the right of UIM recovery rather than the $50,000 limits of the underlying liability policy. That was the error I thought we granted review to correct.

*29
II. Olympic Steamship Attorney Fees

Quite aside from the aforementioned, I disagree with the majority that these insureds are not entitled to recover reasonable attorney fees against their insurer notwithstanding this case represents a denial of UIM coverage reversed on appeal.
When “the conduct of the insurer imposes upon the insured the cost of compelling the insurer to honor its commitment” under an insurance contract, the insured is allowed to recover those costs. Olympic S.S. Co., 117 Wn.2d at 53. Here Liberty Mutual facially denied UIM coverage, a decision reversed by both the Court of Appeals and our majority because “Liberty could realize a windfall if it were allowed to completely deny the Tripps any UIM coverage.” Majority at 17. Thus the majority holds the insurer wrongfully denied all UIM coverage causing the Tripps to incur those costs necessary to compel Liberty to honor its commitment. Olympic Steamship dictates the Tripps are entitled under these circumstances to recover an award of reasonable attorney fees sufficient to compensate them for their trouble.
The majority defends its decision by citing Public Utility District No. 1 v. International Insurance Co., 124 Wn.2d 789, 815, 881 P.2d 1020 (1994) (PUD I), claiming attorney fees aren’t available when an insured fails to comply with express coverage terms. Majority at 20. I disagree.
PUD I was not a UIM case. Moreover the gravamen of the attorney fees holding was that the insureds settled their claims “without the consent of their insurers.” PUD I, 124 Wn.2d at 815. Such a basis would be invalid in the UIM context because a consent to settle clause in a UIM policy is void as against public policy. Elovich v. Nationwide Ins. Co., 104 Wn.2d 543, 553, 707 P.2d 1319 (1985).
Hamilton put Liberty Mutual on notice UIM coverage cannot be contractually diminished by subrogation. Hamilton, 107 Wn.2d at 731. The majority cites this rationale to support its decision on the UIM claim but then fails to honor it by awarding attorney fees. Majority at 18, 20.
*30Liberty therefore was charged with the knowledge that it would be allowed to credit the full amount of the tortfeasor’s liability coverage against the insureds’ damages, Hamilton, 107 Wn.2d at 728, and we have held the Tripps’s settlement was not a valid basis to deny all coverage.7 Although Liberty is entitled to full credit of the $50,000 liability limit offset under Hamilton, no theory arising under the facts of this case sustained by the majority justifies complete denial of UIM coverage.
The majority claims the Tripps’s failure to comply with the contract precipitated this action, not Liberty’s conduct. Majority at 20. This is simply not true. It is Liberty Mutual’s conduct, not that of the Tripps, that is being reversed by today’s decision. Because of its wrongful actions Liberty must now be compelled to compensate its insureds. The majority gives with one hand and takes away with the other: upholding Hamilton by reversing Liberty’s denial of all UIM coverage but refusing to honor Olympic Steamship by awarding the attorney fees that reversal requires.
I dissent.
Johnson, J., and Kato, J. Pro Tern., concur with Sanders, J.

 There was no consent to settle provision in the insurance contract, and in any event the Tripps had the right to settle their claims against the tortfeasor with or without the consent of Liberty Mutual.