Lock v. American Family Ins. Co. No. 79255-6-I (April 6, 2020)

Issues: (1) Whether the trial court erred in excluding evidence of the UIM carrier’s litigation conduct after the named insured filed of a UIM? NO. (2) Whether the trial court erred in finding that the insured failed to prove evidence of damages to business or property which rendered her Consumer Protection Act (CPA) claim unsupportable as a matter of law? NO.

Facts: Stephanie Lock sued American Family Insurance Company seeking coverage under her UIM policy after she was injured in a collision with an uninsured driver in 2013. All of Lock’s medical bills were paid by American Family out of PIP benefits under the policy. American Family valued the remainder of Lock’s claim at $8,500 and made two settlement offers. Lock did not accept and later filed suit in King County Superior Court. Her lawsuit included extra-contractual claims for insurance bad faith, violations of the CPA and violation of the Insurance Fair Conduct Act (IFCA). At some point during the litigation, despite American Family being aware that Lock was represented by counsel, a representative of American Family sent a check directly to Lock and claimed it was for a complete release of all claims.

American Family brought a pre-trial motion to exclude evidence of American Family’s direct contact with Lock as well as the litigation tactics of American Family’s counsel after the UIM lawsuit had been filed. The trial court granted both motions. Following a verdict in Lock’s favor, the trial court granted a judgment notwithstanding the verdict (JNOV) on Lock’s extra-contractual claims. The trial court concluded that Lock failed to prove damages proximately caused by American Family’s bad faith and failed to demonstrate injury to business or property in support of her CPA claim. Lock appealed and argued that the trial court abused its discretion in excluding the post-litigation conduct of American Family’s counsel and American Family’s direct communications with Lock.

Holding: The Court of Appeals affirmed the trial court’s order excluding post-litigation conduct of trial counsel and the dismissal of Lock’s CPA claim. The Court of Appeals held that Lock’s failure to prove evidence of damages to business or property rendered her CPA claim unsupportable as a matter of law. The inconvenience and expense involved in prosecuting a CPA claim does not support a claim for injury to business or property. Likewise, personal injuries are not compensable and do not satisfy the injury requirement. Thus, damages for emotional distress were not recoverable under the CPA. The Court of Appeals, however, reversed the trial court’s JNOV dismissing Lock’s insurance bad faith claims and the order excluding evidence of American Family’s direct contact with Lock during litigation finding that Lock may have suffered damages related to her insurance bad faith claim.

Discussion: Much of this dispute focused on the post-litigation conduct of American Family’s trial counsel which was excluded from trial. The Court of Appeals concluded that a UIM insurer “stands in the shoes” of the tortfeasor, may defend as the tortfeasor would defend and is entitled to counsel’s advice in strategizing the same defenses that the tortfeasor could have asserted. Thus, a natural consequence of UIM litigation is that the nature of the relationship between an insurer and its insured becomes adversarial and the parties are then bound by normal rules of procedure and ethics. Post litigation conduct of an insurer’s trial counsel is not the basis for liability for insurance bad faith – the remedy for bad litigation conduct is properly sought through motions to strike, compel discovery, secure protective orders, or impose sanctions – as both the state and federal court judges did here.

Briefing by Audrey Chambers, an Associate Attorney in HWS Law Group LLP’s Seattle Of ice. Audrey is licensed to practice in Washington.