Insurer must pay excess consent judgment for bad-faith failure to settle for policy limit

By Jeffrey P. Downer

When a liability insurer commits bad faith for failing to settle within its policy limit and its insured then consents to judgment in a higher amount and assigns its coverage rights to the claimant, the insurer must pay the full judgment, the Washington Supreme Court has held.

In Besel v. Viking Ins. Co., no. 71071-6 (July 2002), the Court held that such "paper judgments," coupled with assignments of bad-faith rights, are enforceable so long as they are reasonable under the circumstances. Insurers long have fought paying such agreements between claimant and insured because they expressly shield the insured against any personal liability and therefore represent no compensable harm to the insured. Besel is the most pointed Washington case yet to reject that argument and to order the insurer to pay the full consent judgment.

In Besel, Robert Besel was a passenger in Mark Ralston’s car. Ralston was driving drunk. Attempting to elude police, Ralston lost control of his speeding truck and hit a tree, injuring Besel and two other passengers.

Ralston had liability insurance with Viking. The policy had limits of $25,000 per person and $50,000 per accident. The value of Besel’s injuries clearly exceeded those policy limits. Besel hired a lawyer who made claim to Viking on Besel’s behalf. Within two months of the accident, Besel’s lawyer demanded Viking’s policy limits.

Over the next several months, Besel’s counsel repeatedly communicated with Viking, and Viking repeatedly failed to respond timely. More than seven months after the accident and more than five months after the first demand for policy limits, Viking told Besel’s counsel that it refused to settle for policy limits because the claims of the three passengers added up to more than the $50,000 per-accident policy limits.

By this time, Besel had sued Ralston and obtained a default judgment against him. Viking hired a lawyer to defend Ralston who obtained an order setting aside the default judgment, but only as to damages; the trial court held against Ralston on liability and causation.