Washington Appeals Court Upholds Reasonableness of Stipulated Judgment
The Court of Appeals of Washington affirmed a trial court decision approving an $8 million stipulated judgment over a carrier’s challenges to the structure and reasonableness of the settlement. Starr Indem. & Liab. Co. v. PC Collections, LLC, 523 P.3d 805 (Wash. Ct. App. Jan. 24, 2023). The court also held that the carrier’s procedural due process rights were not violated because the carrier had two weeks’ notice of the reasonableness hearing, in which it participated.
The insured was a manager of an entity involved in a mixed-use real estate development project with several other entities. The relationship between the entities soured, leading to a claim against the insured for breach of fiduciary duty, among others. The insured sought a contribution to a settlement from the carrier, but the carrier declined. Later, the parties entered into a settlement agreement that provided for an $8 million stipulated judgment against the estate of the insured for the breach claim. The insured then moved for a determination that the stipulated judgment was fair and reasonable. The carrier moved to intervene and to continue or stay the hearing on the motion. The court granted the motion to intervene but declined to continue or stay the reasonableness hearing. The court held that the stipulated judgment was fair and reasonable.
On appeal, the carrier argued that the structure of the settlement agreement was unreasonable because it allowed the estate of the insured to collect and keep insurance proceeds from a later bad faith action against the carrier, thereby becoming enriched by its own tortious conduct. The court disagreed, noting that, although the structure was “unconventional,” it was not unreasonable because the estate would only recover if the proceeds were obtained after the full payment of the cash purchase price to the claimants. In addition, the court noted that the insureds who stood to recover under the agreement had not committed any wrongdoing.
The court also held that the carrier had not been denied due process. The court held that the carrier was given the opportunity to present evidence on the reasonableness factors, provided oral argument on the issue, and received discovery throughout the underlying litigation. Further, the court rejected the carrier’s contention that it was not given enough time to prepare for the hearing, noting that the carrier “was not a stranger” to the case and was provided two weeks’ notice of the reasonableness hearing. The court also affirmed the trial court’s determination that the settlement amount was fair and reasonable.