Trial News Online
Volume: 43-11
Date: 07/01/08

                                                    A love story: Yakima man fights insurer's refusal

                                                                           By:  Bryan G. Smith


The Collision
In April of 2004, at age 64, after 32 years of service, Robert (Bob) Love retired as a social worker for Casey Family Programs in Yakima. His retirement plans included spending time with his grandchildren and traveling across the country on his new touring motorcycle. But on June 2, 2004, a collision with a negligent driver rendered him unable to ride a motorcycle for the rest of his life.

The collision occurred just weeks before his long-planned cross-country trip when a State Farm insured, with minimal policy limits, failed to yield the right-of-way at a stop sign. The driver pulled out in front of Bob, who was traveling the speed limit on a one-way street in downtown Yakima. Bob’s motorcycle struck the driver’s side door and Bob flew from his bike, spinning in the air, landing on the vehicle and then the pavement. The investigating officer cited the driver of the car for failing to yield the right-of-way.

Bob’s Injuries

As a result of the collision, Bob sustained an “open book” pelvic facture, including a pubic root and interior rami fracture, a fracture to the left sacrum, a periscrotal hematoma, and tears of the ACL and LCL of his knee. His medical expenses were substantial and his employer-funded, ERISA-governed health insurer asserted a significant lien.

Bob hired Tamaki Law Offices to explore his legal options against the at- fault driver.

The Problem: Minimal Liability Limits

After performing an assets check, conducting a tape-recorded pre- litigation interview of the State Farm-insured, and after finding a recently-filed Chapter 7 bankruptcy on her record, Bob authorized a demand for the liability policy limits of $25,000.

The Opportunity: Failure to Promptly Pay the Limit by Imposition of Unreasonable Conditions

To Bob’s surprise, State Farm refused to pay the policy limit unless State Farm had proof that the health insurer and Bob had agreed upon a reimbursement amount to satisfy the health insurance lien. Alternatively, State Farm required that the health insurer be named as a co-payee on the settlement check. Both options were unacceptable since Bob’s bargaining position with the health insurer would be severely compromised if the health insurer’s signature was required to negotiate the check, or if the health insurer was allowed to hold up the final settlement with State Farm by playing hard ball with Bob on the reimbursement amount.1

Over a period of months, Bob made multiple written demands, through counsel, that the policy limit be tendered without naming the health insurer as a co-payee, and without requiring a written agreement between Bob and his health insurer on a reimbursement amount. Bob even offered to sign a hold harmless agreement as to any possible claim the health insurer may have against State Farm and/or its insured.

Throughout this process, my partner Blaine Tamaki and I consulted with WSTLA EAGLE Bob Dawson, whose sage advice was simple: bend over backwards giving State Farm multiple time-limit opportunities to settle the case for the policy limit, and give them everything they need to make a prudent decision.

However, despite our multiple offers to have Bob sign a hold harmless agreement and a full release of all claims against its insured, State Farm still refused to tender its policy limit without the aforementioned conditions.

The Lawsuit

On June 28, 2005, we filed a lawsuit in Yakima County Superior Court on behalf of Bob Love against the State Farm insured. In her answer, the defendant denied liability and alleged comparative fault.

On November 15, 2005, counsel hired by State Farm to represent the insured offered to tender its policy limit without conditions of any kind, save for the release of all claims against its insured. In response, we pointed out that State Farm lost its chance to settle for the policy limit, so discovery proceeded and a trial date was secured.

Through discovery, the defendant admitted that all of Bob’s medical expenses were reasonable in amount, related to the collision, and medically necessary. However, counsel for the insured refused to admit liability, despite the defendant’s admission of fault at her deposition. We thus filed a successful motion for summary judgment regarding liability and proceeded to trial.

In August of 2007, just before trial, State Farm and Bob’s health insurer entered into a settlement agreement whereby State Farm agreed to pay $5,000 to fully satisfy the health insurer’s lien. This was all done without our knowledge or permission. Subsequent to the deal being reached between State Farm and the health insurer, and in an attempt to get the liability claim settled, State Farm’s counsel informed us of the subrogation settlement.

In the weeks before the trial setting, State Farm proposed mediation. Mediation was held on March 5, 2008, with lead trial counsel Blaine Tamaki representing Bob.

After the failed mediation, we prepared motions in limine, jury instructions, and, most importantly, a motion to strike the affirmative defense of “offset,” which the defendant intended to assert at trial to basically eliminate Bob’s claim for medical expenses. According to defense counsel, the defendant was entitled to an offset for the entire amount of Bob’s medical expenses that were paid by his health insurer, based upon the subrogation settlement agreement. We were confident, however, that not only was evidence of the health insurer’s payments for medical expenses and the subsequent $5,000 settlement inadmissible under the collateral source rule, but the entire defense of offset would be stricken by the judge upon our motion.

Four weeks before the second trial setting, Bob offered to settle the case for $350,000, but State Farm rejected his offer. Three weeks before trial, Bob increased his demand to $400,000, which State Farm again rejected. Two weeks before trial, Bob increased his demand to $450,000, and State Farm again rejected his offer. One week before trial, Bob made one final demand to settle for $500,000, and before noon defense counsel hand-delivered a check and release.

Lessons Learned

The lesson learned in this case is that opportunities do arise in even the most straight forward policy limits cases. As trial lawyers, when faced with an insurer’s resistance on a clear policy limits demand (i.e. unnecessary co-payee signatures on settlement checks, signing unreasonable hold harmless agreements, delay in delivering a policy limits check, or other aggravating and unreasonable conduct), we can sometimes transform such situations into opportunities to waive policy limits and force insurers to pay significant extra-contractual damages.

Endnotes:
1. These settlement discussions occurred pre-Sereboff, when the conventional wisdom with ERISA-liens was to disburse all of the settlement proceeds so as not to create an identifiable fund.

Bryan G. Smith, WSTLA EAGLE member, is a partner at Tamaki Law Offices in Yakima, where he has worked since graduating from Seattle University School of Law in 1999. He focuses his practice on injury and death cases involving automobile collisions, government negligence, civil rights violations, utility company negligence, medical malpractice, insurance bad faith, and negligence on Indian reservations.