It is a general principle that insurers face liability beyond their policy limit when they fail to settle a claim against an insured that presents an exposure beyond the limit. States approach the rule in different ways. As demonstrated recently in a Washington appellate decision, Miller v. SAFECO Ins. Co., 2014 Wash. App. LEXIS 1030 (April 28, 2014), insurers need to be very careful there because the ultimate judgment against the insured, even if reached by stipulation between the insured and underlying plaintiff, presents the minimum measure of damages for the nonsettling insurer.

Miller involved an automobile accident in which Patrick Kenny hit a cement truck while driving a vehicle owned by one of his passengers. Safeco Insurance Co. wrote a $500,000 per person and accident primary and $1 million umbrella policies. Despite severe injuries, Safeco did not settle with passenger Miller for policy limits.

Kenny settled with Miller, which included a covenant not to execute with an assignment of Kenny’s rights against Safeco. Safeco later agreed $4.15 million was a reasonable judgment amount. Interestingly, Washington does not require the action be tried to establish its value despite a “no action” policy condition, contrary to many states.

Miller sued Safeco and the jury rendered a verdict for Miller of $13 million, of which $11.9 million was on the assignment. The $11.9 million included the $4.15 million judgment and $7.75 million for other damages such as lost or diminished assets or property; lost control of the case or settlement; damage to credit; effects on insurability; and emotional distress or anxiety. The judgment against Safeco ultimately totaled $21,837,286.73 after interest was added.

The Court of Appeals affirmed, essentially ruling against Safeco on every contested issue. The court rejected Safeco’s argument the stipulated judgment was the only measure of damage. It noted an insured’s damages may also include other damages such as the jury found here.

Another important lesson is that the Court of Appeals agreed Safeco’s reserve information was admissible because it indicates whether the insurer adjusted the claim in good faith. There was evidence Safeco set its reserve at $1.5 million and repeatedly concluded that Kenny was exposed to liability in excess of policy limits. Yet it did not offer that amount to settle.

The Court of Appeals remanded to recalculate the post-judgment interest and it is possible further proceedings could occur. We will report further as they do.