PIP insurer’s IME is privileged in later suit
By Alan M. Singer

A defendant in an auto-accident suit may not discover the results of a prior independent medical examination by the plaintiff’s PIP insurer, Division Two of the Washington Court of Appeals has held.

In Harris v. Drake, __ Wn. App. __, 65 P.3d 350 (March 18, 2003), defendant Drake rear-ended Harris’s car. Harris sought no medical attention at the scene. A day later, however, he claimed shoulder pain and went to a hospital emergency room. Finding no broken bones, the hospital released Harris with medication for pain and inflammation. Over the next 20 months, Harris saw a family-practice physician, a chiropractor, orthopedic surgeons, and a variety of physical therapists. Harris also made a claim for personal-injury-protection (PIP) benefits with his own automobile insurer.

Pursuant to the terms of Harris’s insurance policy, the insurer demanded an independent medical examination (IME). The examination was held roughly six months after the accident. The IME doctor issued two reports, the second of which was issued nearly two years after the accident and stated that Harris’s claimed shoulder problems were "unrelated" to the accident.

Slightly more than two years after the accident, Harris sued Drake for personal injuries. During pre-trial discovery, Drake listed the IME doctor as a potential expert witness. Harris did not object. However, almost five years after the accident, and one day before trial, Harris filed a motion in limine to exclude the IME doctor’s testimony. The motion argued, among other things, that the examination was privileged work product under Heidebrink v. Moriwaki, 104 Wn.2d 392, 706 P.2d 212 (1985). While the parties argued their positions, the judge asked the attorneys to telephone the insurer to ask for its position. The attorneys told the court that the insurer would not allow the doctor to be called and "would not take a position adverse to their insured." The trial court then granted the motion and excluded the doctor’s testimony. After a judgment for plaintiff, Drake appealed.

The Court of Appeals affirmed. It held that the IME doctor’s testimony was work product acquired, prepared, or developed "in anticipation of litigation" under CR 26 and Heidebrink. In Heidebrink, the Washington Supreme Court had held that a liability insurance adjuster’s recorded statements of its insured two days after the accident were taken in anticipation of litigation and therefore privileged work product.

The Drake court reasoned that the privilege protected "information given" by a PIP insured to a PIP insurer just as much as it protected information given in the taped statements in Heidebrink. To support its reasoning, the Court compared the two situations and noted that in each, (1) the insured is "contractually obligated" to give the information, (2) the insured expects the information "to be held in confidence," and (3) the insured’s failure to provide the information results in the insured being "hampered in reaping the benefits" of the insurance.

The Harris court rejected the reasoning of a contrary decision by Division Three of the Court of Appeals, Johnson v. McCay, 77 Wn. App. 603, 893 P.2d 641 (1995). In that case, the claimant, Johnson, was a passenger in the insured vehicle. The Johnson court considered Heidebrink and concluded that when Johnson sought PIP benefits, the purpose of any PIP IME was merely to evaluate whether further PIP benefits should be paid to Johnson, and not in anticipation of the litigation between Johnson and McCay. The Harris court disagreed, however, holding that the PIP IME was subject to work-product protection in PIP litigation and other proceedings thereafter.

Insurer’s acts in other states not proof of bad faith
By A. Janay Ferguson

An insurer’s alleged bad faith in one state generally is not evidence of its bad faith in another state, the United States Supreme Court has held.

In Campbell v. State Farm, no. 01-1289 (Apr. 2003), the policyholder, Curtis Campbell, was awarded $25 million in punitive damages for State Farm’s bad faith in handling the defense of a third-party automobile insurance claim. Washington does not allow punitive damage awards, but the Campbell ruling marks the evidentiary limit for the use of an insurer’s conduct outside Washington in bad faith claims.

In 1981, Campbell was driving in Utah. He tried to pass six vans traveling ahead of him on a two-lane highway. Todd Ospital was driving in the oncoming lane in a small car. To avoid a head-on collision with Campbell, Ospital swerved and collided with a vehicle being driven by Robert Slusher. Ospital was killed. Slusher was permanently disabled. Campbell was unharmed.

Ospital and Slusher sued Campbell. Witnesses and investigators, including one of State Farm’s own investigators, agreed early in the case that Campbell’s unsafe pass caused the crash. However, State Farm declined Ospital and Slusher’s offers to settle for policy limits. The case proceeded to trial. State Farm assured the Campbells that their assets were safe, that State Farm would represent their interests, and that they did not need to procure separate counsel. A jury held Campbell 100 percent at fault for the accident and awarded $135,849 in excess of the policy limits. State Farm refused to pay the excess or to post a bond for the Campbells’ appeal.

In late 1984, while the appeal was pending, Slusher, Ospital, and Campbell agreed that Slusher and Ospital would not execute their claims against Campbell, and Campbell would assign to them part of his bad-faith claims against State Farm. Slusher and Ospital’s attorneys would represent Campbell, and settlement and major decisions in the bad-faith action could be made only with Slusher and Ospital’s agreement. Campbell lost his appeal and State Farm paid the full judgment, including the sum exceeding policy limits.

In 1989, brought the Campbell v. State Farm bad-faith action. Campbell put State Farm’s practices on trial and presented evidence ranging over 20 years in numerous states. Over State Farm’s objection, the trial court allowed evidence of practices unrelated to third-party automobile claims. State Farm appealed. The Utah Supreme Court approved the trial court’s decision to allow evidence of State Farm’s national policies and upheld the damage award.

Most of the Supreme Court’s analysis of the Utah decision focused on the relationship of punitive damages and constitutional protections against the imposition of grossly excessive or arbitrary punishments. However, the Court’s disapproval of the use of evidence from states outside Utah has application in other jurisdictions, including Washington.

The Court found the Campbell case had been converted into a platform to expose and punish the perceived deficiencies of State Farm’s operations throughout the country. The Court determined this was improper and noted that lawful out-of-state conduct may be probative when it demonstrates the deliberateness of the behavior in the state where it is tortious only so long as the out-of-state conduct has a nexus to the specific harm suffered by the plaintiff.

An agreed judgment between a claimant and a policyholder is presumed to be reasonable and enforceable against the policyholder’s liability insurer where the insurer has acted in bad faith, the Washington Supreme Court has held.

In Truck Ins. Exchange v. VanPort Homes, no. 70747-2 (Nov. 2002), the policyholder, VanPort, provided consulting services for customers who wanted to build their own homes. VanPort would assist with budgets, schedules, and compliance with government requirements.

Several of VanPort’s customers sued it, alleging construction defects and that VanPort negligently failed to detect those defects when inspecting subcontractors’ work. In July through October 1992, VanPort tendered defense of the lawsuits to Truck, its comprehensive general liability (CGL) insurer.

More than a year passed before Truck issued a letter declining coverage. Although the letter quoted extensively from the policy, it did not explain Truck’s coverage analysis. Truck’s letter said that it based its coverage decision on a "thorough investigation." In fact, an internal memo showed that Truck had refused the tender of defense without beginning to investigate the liability issues.

In an April 1994 letter, VanPort asked Truck to explain its coverage denial. Truck never responded. In February 1996, Truck filed a declaratory-judgment action seeking a declaration that it had no duty to defend VanPort. VanPort counterclaimed for bad faith and other claims. VanPort and the claimants later agreed to a settlement of about $489,000. VanPort assigned most of its counterclaims to the claimants, who agreed to collect only against VanPort’s insurer and not against VanPort itself.

The trial court then decided on cross-motions for summary judgment that Truck did have a duty to defend, which it breached in bad faith. The Court of Appeals affirmed most of the trial court’s rulings, and the Supreme Court then accepted review.

Truck contended that because a CGL policy is not a performance bond, its denial of coverage was correct; the claimants alleged only that VanPort had failed in its contract obligations, not that it caused any resultant property damage. Truck also asserted a policy exclusion for damage to realty on which the insured or contractors working on its behalf are performing operations.

The Supreme Court disagreed. The claimants sued in tort, not just in contract, so that the claims were within the terms of the insuring agreement. The Court also found that the exclusion might or might not apply depending on unresolved facts, so that Truck owed at least a duty to defend. The VanPort Court also concluded that Truck committed bad faith based on its tardy and inadequate response to the insured’s tender of the claims and its failure to investigate before rejecting that tender.

The Court therefore held that this settlement was fully enforceable against Truck if it was reasonable, based on its recent decision in a similar case, Besel v. Viking Ins. Co., 146 Wn.2d 730 (2002). If the trial court finds the settlement to be reasonable, it is presumptively reasonable, and the burden then shifts to the insurer to show that the settlement resulted from fraud or collusion. Overcoming this presumption could prove difficult for insurers.

Around The Firm

August G. Cifelli successfully defended an appeal of his earlier defense verdict in favor of the General Motors Corp. in Free v. General Motors Corp. In Free, plaintiff’s wife, an asthmatic, died after an auto accident caused an airbag to deploy. As the airbag deployed, airborne particulates triggered the asthmatic reaction that caused the death. However, the airbag worked as designed, so plaintiff’s counsel argued that GM failed to warn of the hazard after the vehicle had been sold. The jury disagreed. Plaintiff appealed, arguing errors in the jury instructions. The Court of Appeals held that the trial court instructed the jury correctly and that plaintiff’s proposed instructions misstated Washington’s law of product liability. Plaintiff sought review before the Washington Supreme Court, which declined to hear the case. … Gus Cifelli also won dismissal for his client in Glubrecht v. Pape Lift Group, which involved a serious injury during the operation of a forklift. Unlike Gus’s client, co-defendants settled for a seven-figure sum. … In [name withheld] v. Seattle Archdiocese, an action alleging priest sex abuse, Michael A. Patterson and Patricia K. Buchanan obtained a voluntary dismissal with prejudice after discovery of evidence casting serious doubt on plaintiff’s credibility and mental stability. The priest denied the 40-year-old allegations and indeed, in his 74 years, never had such a complaint or allegation raised against him. After his videotaped deposition, plaintiff conceded the credibility of the priest and abandoned the claim.

David L. Martin and Alan M. Singer won a defense arbitration award in Williams v. Seattle Iron & Metals Corp. Before the hearing, Dave extracted a litany of damaging admissions from the plaintiff at deposition. The plaintiff then was so committed to this account of events that at the hearing, Dave and Alan persuaded the arbitrator to enter an award for the defense based solely on the parties’ written submissions, without taking any testimony. Plaintiff sought a trial de novo. But because plaintiff’s request for trial de novo was procedurally defective, the court dismissed the entire action with prejudice.

Kenneth E. Hepworth won summary judgment of dismissal in Massey v. Gregerson’s Homes, Inc. In that case, plaintiffs bought a manufactured home in 1994. Plaintiffs contracted with Gregerson’s to prepare the home site, including clearing trees, installing utilities, and earthwork. Gregerson’s finished the work in February 1995. In August 2002, more than seven years after the completion of that work, the Masseys sued Gregerson’s for supposedly poor work, alleging negligence, breach of contract, breach of warranty, and timber trespass. Ken moved for summary judgment because the six-year statute of repose had run. Plaintiffs argued that the parties had a continuing relationship after February 1995 that tolled the statute of limitations, and that they did not discover their claims immediately. The court agreed with Ken that neither argument was correct and dismissed the action.

William L. Cameron won summary judgment of dismissal of Richard v. Trendwest, a federal racial-discrimination action. Plaintiffs alleged that management at Trendwest’s furniture plant in Tacoma was slow to act on misconduct of some employees, including a failure to remove racist graffiti from the men’s room. Bill argued that plaintiffs’ declaration testimony to that effect was not enough to show a genuine issue for trial. The federal court agreed and dismissed the action. … Stacy D. Heard won summary judgment in Kirtley v. Stowell, a legal-malpractice action. In the underlying child-custody case, the child’s grandmother had had custody of the child for several years but lost it to the mother. The grandmother then sued her own lawyer, as well as the opposing lawyer, whom Stacy defended, and other professionals, alleging that they conspired to deprive her of her due-process rights. The court dismissed the claim against Stacy’s client and awarded attorney fees.

Jennifer M. Ilenstine won the trial of English v. Hendren. Jennifer’s clients, the Hendrens, had rented a Budget truck to move from Camano to Bainbridge Island. Mr. Hendren’s friend was driving the truck and parked it at the top of a hill. Later, without warning, it rolled downhill while friends were loading it, crashing into plaintiff’s garage and hitting a car. The Hendrens later learned that Budget routinely loosened emergency brakes to make them easy to set, and usually provided chocks but failed to do so for this truck. The judge agreed with Jennifer that even though the truck would not have rolled absent negligence, Mr. Hendren was not the negligent party since he had never driven the truck, was not responsible for securing it, and had no reason to suspect that the truck would roll. … Michelle A. Corsi won the trial of Nielsen v. Solid Trading v. Sun Mark Realty. Sun Mark acted as dual real estate agent in Solid’s sale of 40 acres to Nielsen, a logging company. Nielsen sued Solid for failing to return closing papers in time for closing, as the purchase and sale agreement required. Solid then sued Sun Mark, claiming that it had breached fiduciary duties by failing to inform Solid of pending logging regulations that would affect the amount of timber that Nielsen could harvest. The court dismissed the claims against Sun Mark, finding that it had nothing to do with Solid’s failure to return the closing papers, and awarded Michelle’s clients $50,000 in attorney fees pursuant to the purchase and sale agreement.