WASHINGTON FED. CT. (E.D.) HOLDS THAT TRIAL COURT MAY HOLD REASONABLENESS HEARING EVEN AFTER GLOBAL SETTLEMENT
RCW 4.22.060 may apply to situations involving insured defendants who sue their insurers for acting in bad faith, or assign their bad faith claims, even when the underlying settlement resolved claims between all parties; subject to undecided Bird issue.
Shaw Group, Inc. v. Zurich American Ins. Co., 2012 WL 1466779 (E.D. WA)(4/27/12), involved an underlying matter where REC Solar sued the Shaw parties (the insured defendants) alleging that the Shaw parties supplied defective pipe spools on two large construction projects. Coverage disputes arose between the Shaw parties and their insurers related to REC Solar’s lawsuit. Although all of the parties in the REC Solar suit resolved the suit in settlement, (and the Shaw parties do not appear to have assigned their bad faith claims to REC Solar), the Shaw parties moved the Court in this lawsuit, pursuant to RCW 4.22.060, to conduct a hearing to determine the reasonableness of the settlement in the REC Solar suit. (This lawsuit– Shaw Group, Inc. v. Zurich American Ins. Co.– also involved two dec actions between the Shaw parties and their insurers.)
The Court, noting that the plain language of RCW 4.22.060 is designed to control the effects of settlements upon non-settling parties, observed that a reasonableness hearing did not appear to be applicable in the REC Solar case since all parties in that case had settled. Nonetheless, the Court observed that RCW 4.22.060 has been extended by Washington courts to apply to situations involving insured defendants who sue their insurers for acting in bad faith (citing Red Oaks Condo Owners Assoc. v. Sundquist Holdings, Inc., 128 Wn.App. 317 (2005)). The Court also noted that the issue of whether an insurer has a right to a jury determination of reasonableness is awaiting decision by the Washington Supreme Court in the Bird v. Best Plumbing Group LLC case. Although the Court read Washington State law “to allow a reasonableness hearing under the circumstances presented by the three cases before this Court”, in view of the undecided Bird issue, the Court declined to determine whether its findings at that hearing will be the “presumptive measure of damages in the bad faith lawsuit” and further declined to reach the question of whether 4.22.060 applies to the insurance disputes.