Mutual Of Enumclaw, App./cross-res v. Myong Suk Day, Res/cross-appellant
197 Wash. App. 753
| Wash. Ct. App. | 2017Background
- In 2009 two pedestrians (Lee and Smith) sued Myong Suk Day after being injured by teenagers who had purchased alcohol at Day’s store. Day’s policy with Mutual of Enumclaw (MOE) did not include liquor liability coverage.
- Day had an independent agent, Michael Huh; Day contends Huh told her she had coverage and tendered the claim to MOE. MOE defended under a reservation of rights and filed a declaratory action.
- In 2011 Day agreed to entry of large agreed judgments in favor of Lee and Smith and assigned to them only Day’s claims against Huh; Day retained claims against MOE. The settlement provided that once claims against Huh were resolved, Lee and Smith would sign and permit full satisfaction of the agreed judgments against Day.
- Huh later settled with Lee and Smith for $600,000; the trial court found the Day–Lee/Smith settlement reasonable and entered the agreed judgments against Day in 2014.
- In the coverage/bad-faith trial a jury awarded Day $300,000 for emotional distress; the trial court applied the IFCA multiplier to award $600,000 additional and also entered a judgment for Day against MOE based on coverage by estoppel in the amount of the agreed judgments (~$10.46M). Trial court denied reformation; it authorized a supplemental fee judgment (not yet entered).
- On appeal the Court of Appeals: affirmed emotional distress and IFCA multiplier awards, affirmed denial of reformation, reversed the coverage-by-estoppel judgment, and awarded Day appellate attorney fees for issues she prevailed on.
Issues
| Issue | Plaintiff's Argument (Day) | Defendant's Argument (MOE) | Held |
|---|---|---|---|
| Whether a rebuttable presumption of harm and coverage by estoppel arises from MOE’s bad-faith handling of coverage/reservation issues | Butler presumption applies where insurer acts in bad faith defending under a reservation of rights; Day argued presumption supports awarding the agreed judgments | MOE argued presumption doesn’t apply or is rebutted here because Day retained claims against MOE and the settlement insulated Day from exposure | Even if presumption arises, it is rebutted: Day was legally insulated (agreement required full satisfaction of judgments once Huh claims resolved), so no coverage by estoppel; judgment reversed |
| Whether jury instructions MOE requested (binders, modification, duty to investigate policy-meaning) were required | Day argued reformation was reserved to the court and jury should decide bad faith tort issues only | MOE sought instructions framing reformation/binder law to support its defense | Court held trial court did not abuse discretion: instructions could have misled jury; jury was properly instructed on bad-faith elements; award of emotional distress affirmed |
| Whether emotional distress damages are "actual damages" subject to trebling under IFCA | Day obtained jury emotional-distress award and IFCA trebling at trial | MOE argued on appeal emotional distress aren’t "actual damages" under IFCA (raised for first time on appeal) | Issue not preserved for appeal; court declined to decide; IFCA treble award affirmed |
| Whether trial court erred in denying reformation of the insurance contract | Day argued contract should be reformed based on mistake/inequitable conduct; requested court inquire under clear-and-convincing standard | MOE disputed reformation; trial court found conflicting testimony and credibility issues | Court affirmed denial: reformation requires clear, cogent, convincing proof; trial court’s credibility-based refusal to reform was not an abuse of discretion |
Key Cases Cited
- Safeco Ins. Co. of Am. v. Butler, 118 Wn.2d 383 (establishing rebuttable presumption of harm and coverage by estoppel when insurer acts in bad faith defending under reservation of rights)
- Tank v. State Farm Fire & Cas. Co., 105 Wn.2d 381 (insurer’s enhanced obligations to investigate and inform insured; foundational bad-faith duties)
- Coventry Assocs. v. Am. States Ins. Co., 136 Wn.2d 269 (no presumption of harm in first-party context; limits on presumption doctrine)
- St. Paul Fire & Marine Ins. Co. v. Onvia, Inc., 165 Wn.2d 122 (presumption of harm/coverage by estoppel not appropriate where no reservation of rights or failure to defend)
- Werlinger v. Clarendon Nat’l Ins. Co., 129 Wn. App. 804 (presumption of harm rebutted where insured was insulated from liability — bankruptcy analogy)
- Mut. of Enumclaw Ins. Co. v. Dan Paulson Constr., Inc., 161 Wn.2d 903 (discussing measure of damages and presumption issues in bad-faith/reservation settings)