Another consent judgment enforced against liability insurer

(Continued - Page 2)

Red Oaks requested a reasonableness hearing, but MOE did not learn of it until three days before the hearing. MOE moved to intervene and to continue the hearing so that it could conduct discovery and prepare for the hearing. The parties agreed that MOE could intervene, but the court denied the continuance. MOE chose not to participate in the hearing, because it thought that doing so might breach its duties to Sundquist in its reservation-of-rights defense. The court found the settlement reasonable and entered judgment for the agreed $1.9 million amount. MOE moved for reconsideration, which was denied, and then appealed.

MOE argued that it was denied due process because it had only three days to address reasonableness, which was too little time to prepare, and was not allowed to conduct discovery regarding the circumstances of the settlement. The Court of Appeals acknowledged that an insured might agree to an inflated settlement amount in exchange for immunity from personal liability. The court nevertheless held that MOE had enough time to prepare here, because MOE knew its duties to Sundquist long before the settlement, had ample access to the facts of the case because it had defended Sundquist, and did not explain how more time to interpret the settlement agreement would have made a difference.

Red Oaks follows Howard v. Royal Specialty Underwriting, Inc., 121 Wn. App. 372 (2004), which similarly rejected the insurer's request to conduct discovery relating to reasonableness of the settlement. Neither case adequately addresses the potential bad faith if an insurer did as these courts suggested and used defense-file materials to its own advantage. Nor does either decision observe that even defense-file materials would shed no light on whether the settlement stems from collusion between plaintiff and insured, which often is the main argument against reasonableness.