[No. 35322-9-II. Division Two. November 6, 2007.]
[1] Appeal — Review — Issues Not Raised in Trial Court — In General. An appellate court may decline to consider an issue that is raised for the first time on appeal and that the trial court did not have the opportunity to rule on. [2] Insurance — Settlement — Between Insured and Injured Party — Covenant Judgment — Insurer's Bad Faith — Finding — Necessity. When an insurer denies coverage to an insured for claims made by a plaintiff, agreeing only to defend the insured under a reservation of rights, the insured may settle the claims by means of a covenant judgment that the plaintiff agrees not to enforce against the insured and that assigns to the plaintiff the insured's claims of bad faith against its insurer, whether or not a formal finding of bad faith has been made against the insurer. The insured is not required to wait for a formal finding of bad faith before negotiating a settlement if it is in the insured's best interest to accept a settlement offer that effectively relieves the insured of personal liability; i.e., an insurer that is disputing coverage cannot compel the insured to forego a settlement that is in the insured's best interests. [3] Insurance — Settlement — Between Insured and Injured Party — Covenant Judgment — Reasonableness — Insurer's Bad Faith — Finding — Necessity. When a plaintiff's claims against an insured are settled by means of a covenant judgment that the plaintiff agrees not to enforce against the insured and that assigns to the plaintiff the insured's claims of bad faith against its insurer, the reasonableness of the judgment may be determined by a court whether or not a formal finding of bad faith has been made against the insurer. A reasonableness determination does not determine whether the insurer owes coverage; that is a separate legal question determined in a declaratory action. If the court in the declaratory action rules that there is no coverage, the insurer will not be liable for the covenant judgment, reasonable or not. If the court in the declaratory action rules that there is coverage, the covenant judgment will be the presumed damages. The fact that the reasonableness decision may affect the declaratory action does not preclude the court from conducting a reasonableness hearing on the covenant judgment. [4] Insurance — Settlement — Between Insured and Injured Party — Covenant Judgment — Reasonableness — Factors. The reasonableness of a settlement agreement made as a covenant judgment that the plaintiff agrees not to enforce against the defendant and that assigns to the plaintiff the defendant's claims of bad faith against its insurer is determined by considering the plaintiff's damages; the merits of the plaintiff's liability theory; the merits of the defendant's defense theory; the defendant's relative fault; the risks and expenses of continued litigation; the defendant's ability to pay; any evidence of bad faith, collusion, or fraud; the extent of the plaintiff's investigation and preparation of the case; and the interests of parties not being released. No single criterion controls, and all nine are not necessarily relevant in all cases. [5] Compromise and Settlement — Settlement Agreement — Covenant Judgment — Reasonableness — Review — Standard of Review. A trial court's determination of the reasonableness of a settlement agreement made as a covenant judgment that the plaintiff agrees not to enforce against the defendant and that assigns to the plaintiff the defendant's claims of bad faith against its insurer is reviewed for an abuse of discretion. A trial court abuses its discretion when its decision is manifestly unreasonable or is based on untenable grounds. [6] Insurance — Settlement — Between Insured and Injured Party — Covenant Judgment — Reasonableness — Determination — Record — Sufficiency. A trial court may determine the reasonableness of a settlement agreement made as a covenant judgment that the plaintiff agrees not to enforce against the defendant and that assigns to the plaintiff the defendant's claims of bad faith against its insurer without specifically addressing the reasonableness factors delineated in Chaussee v. Maryland Casualty Co., 60 Wn. App. 504 (1991), if the record shows that the factors were briefed by the parties and considered by the court prior to the reasonableness hearing or the record is otherwise sufficient to support a reasonableness determination. [7] Compromise and Settlement — Settlement Agreement — Reasonableness — Factors — Complicated Statutory Construction Issues and Jury Questions. In a case that turns on complicated statutory construction issues and jury questions, a decision to settle for an amount within the range of the evidence is reasonable. [8] Witnesses — Deadman's Statute — Scope — Decedent's Acts or Transactions Unrelated to Litigation. The deadman's statute (RCW 5.60.030) does not bar testimony concerning a deceased's acts or transactions that did not involve any party to the litigation. [9] Compromise and Settlement — Settlement Agreement — Public Policy — In General. Public policy strongly encourages the settlement of disputes. [10] Compromise and Settlement — Settlement Agreement — Reasonableness — Factors — Bad Faith, Collusion, or Fraud — Proof — Sufficiency. For purposes of determining the reasonableness of a settlement agreement, bad faith, collusion, or fraud may not be inferred based on innuendo and speculation alone. Fraud will not be presumed and must be proved by evidence that is clear, cogent, and convincing. [11] Compromise and Settlement — Settlement Agreement — Reasonableness — Factors — Bad Faith, Collusion, or Fraud — Proof — Rapid Settlement. For purposes of determining the reasonableness of a settlement agreement, a relatively brief period of time between the filing of the action and the negotiation of the agreement does not necessarily demonstrate bad faith, collusion, or fraud between the parties. [12] Costs — Attorney Fees — On Appeal — In General. Under RAP 18.1(a), attorney fees and costs may be awarded on appeal if applicable law grants a party the right to recover attorney fees or expenses. In general, a party who is entitled to attorney fees at trial will be entitled to attorney fees on appeal if the party prevails on appeal. [13] Costs — Attorney Fees — On Appeal — Prevailing Party — Settlement Agreement. When a trial court approves a settlement agreement that includes attorney fees but does not separately grant attorney fees and costs to the settling parties, there is no basis for awarding attorney fees and costs to the settling parties on appeal under RAP 18.1(a). Nature of Action: In an action for damages resulting from a leaking underground oil tank in which the parties stipulated to a judgment and the defendant assigned its claims against its insurer to the plaintiffs in exchange for the plaintiffs' promise not to execute the judgment against the defendant, the defendant sought a determination by the court of the reasonableness of the settlement agreement. The insurer intervened and opposed the motion. In a separate action filed shortly after the parties reached their settlement agreement, the insurer sought a declaration that it did not have a coverage obligation to the defendant for the plaintiffs' claims. Superior Court: The Superior Court for Pierce County, No. 05-2-14615-5, Thomas P. Larkin, J., on August 18, 2006, entered a judgment finding the settlement agreement to be reasonable. Court of Appeals: Holding that the trial court could properly determine the reasonableness of the settlement agreement and that the record supported the trial court's determination that the settlement was reasonable, the court affirms the judgment. Nancy T. McKinley-, Aaron P. Gilligan-, Catherine E. Christensen-, and Richard S. Fallon- (of Fallon & McKinley, PLLC), for appellant. James T. Derrig- (of Eklund, Rockey Stratton, PS) and Sandra J. Rovai-, for respondents. ¶1 ARMSTRONG, J. — William and Karyl Martin sued H.E. Sherry Johnson's Estate for damages resulting from a leaking underground oil tank at a house the Martins bought from Johnson. The Martins and Johnson's Estate agreed to settle the lawsuit. Johnson's homeowners' insurer, Metropolitan Property & Casualty Insurance Company, intervened and now appeals the trial court's ruling that the settlement was reasonable. We affirm. FACTS ¶2 In 1996, William and Karyl Martin purchased a house from H.E. Sherry Johnson, now deceased. Johnson had owned the house, which was built in 1910, since the 1950s. In the 1970s, Johnson converted the house from oil to electric heat but did not remove or otherwise properly decommission the underground oil tank. The underground tank began leaking oil before 1994. ¶3 In a real property transfer disclosure statement, Johnson checked the box "don't know" in response to questions about the presence of underground storage tanks. Clerk's Papers (CP) at 103. The Martins' inspector did not discover the tank because its filler inlet was covered by landscaping. ¶4 In 2004, the Martins put the house up for sale. The eventual buyer, while researching the house's history, discovered that there was possibly an oil tank on the property. A contractor found the tank, and the buyer required its removal before purchasing the house. The Martins spent $61,415.63 to remove the tank and to clean the contaminated soil and groundwater surrounding it. ¶5 Johnson sought coverage for the Martins' claims against her from Metropolitan Property & Casualty Insurance Company, which provided Johnson's homeowners' insurance during the time she lived at the house. Metropolitan denied coverage for the cost of cleaning up the contamination and any potential damages from exposure to toxic substances; Metropolitan agreed, however, to defend the Estate, ¶6 The Martins filed this lawsuit against Laurence M. Johnson as the Estate's personal representative, alleging that H.E. Sherry Johnson was liable for the costs of the cleanup under the Model Toxics Control Act, chapter 70.105D RCW, and that she negligently failed to properly decommission the tank or warn the Martins of its existence. ¶7 The Martins and the Estate settled. The Estate agreed to a stipulated judgment of $81,928.63 against it and assigned its claims against Metropolitan to the Martins, in exchange for a promise not to execute the judgment against the Estate (a covenant judgment). The Martins also agreed to waive their claims for general damages and litigation costs. The $81,928.63 represented the Martins' cleanup costs and attorney fees. The settlement was contingent on the trial court approving it as reasonable. ¶8 Shortly after the settlement agreement in this case, Metropolitan filed a declaratory judgment action, seeking a declaration that there is no coverage for the Martins' claims against the Estate. ¶9 The Estate moved for an order finding the settlement reasonable; the Martins joined the motion. Metropolitan intervened and opposed the motion. The trial court ruled that the settlement was reasonable. Metropolitan now appeals. ¶10 The questions are whether the trial court properly held a reasonableness hearing in this action rather than the declaratory judgment action and, if so, whether the evidence supports the trial court's finding that the settlement was reasonable. ANALYSIS I. REASONABLENESS HEARING A. Effect of RCW 4.22.060 ¶11 Metropolitan contends that the trial court erred in holding a reasonableness hearing because there were no joint defendants with a right of contribution for joint and several liability and therefore the provision in RCW 4.22.060 for a reasonableness hearing does not apply. B. Requirement of Bad Faith ¶13 Metropolitan also contends that the trial court erred in making a reasonableness determination because there were no claims of bad faith against it in this lawsuit and the parties presented no evidence that it acted in bad faith. ¶14 If an insurance company refuses in bad faith to settle a claim, the insured may independently negotiate a settlement; the insurance company is then liable for the settlement to the extent that it is reasonable and paid in good faith. Besel v. Viking Ins. Co. of Wis., 146 Wn.2d 730, 736, 49 P.3d 887 (2002) (citing Evans v. Cont'l Cas. Co., 40 Wn.2d 614, 628, 245 P.2d 470 (1952)). Even where the negotiated settlement includes a covenant not to execute against the insured, the insurance company is liable for the settlement amount because an agreement not to execute does not preclude a showing of harm to the insured. Safeco Ins. Co. of Am. v. Butler, 118 Wn.2d 383, 397, 823 P.2d 499 (1992). An insurance carrier that acts in bad faith " 'is in no position to argue that the steps the insured took to protect himself [or herself] should inure to the insurer's benefit.' " Besel, 146 Wn.2d at 737 (alteration in original) (quoting Greer v. Nw. Nat'l Ins. Co., 109 Wn.2d 191, 204, 743 P.2d 1244 (1987)). ¶16 Here, Metropolitan had informed the Estate that it was denying coverage for the Martins' claims and was providing a defense under a reservation of rights. Facing potential liability for the cleanup costs and general damages, it was in the Estate's best interest to accept a settlement offer that relieved it of liability; Metropolitan cannot compel the Estate to forego this opportunity. Butler, 118 Wn.2d at 397. ¶18 The trial court did not err in holding a hearing on the reasonableness of the settlement between Johnson's Estate and the Martins. II. REASONABLENESS OF THE SETTLEMENT ¶19 Metropolitan also contends that the trial court erred in finding the $81,928.63 settlement reasonable because the Estate's liability in the case was not clear, absolute, or indefensible. "[T]he releasing person's damages; the merits of the releasing person's liability theory; the merits of the released person's defense theory; the released person's relative faults; the risks and expenses of continued litigation; the released person's ability to pay; any evidence of bad faith, collusion, or fraud; the extent of the releasing person's investigation and preparation of the case; and the interests of the parties not being released." Chaussee, 60 Wn. App. at 512 (alteration in original) (quoting Glover v. Tacoma Gen. Hosp., 98 Wn.2d 708, 717, 658 P.2d 1230 (1983)); see also Besel, 146 Wn.2d at 738 (approving use of these factors to evaluate covenant judgment settlements). No single criterion controls, and all nine are not necessarily relevant in all cases. Besel, 146 Wn.2d at 739 n.2. A. The Martins' Damages ¶23 Metropolitan asserts that the Estate conceded full liability and attorney fees without any discovery. The record shows that the Martins incurred $61,415.63 in cleanup costs and an unspecified amount of attorney fees in their action against the Estate. And the Martins waived their claims for general damages and litigation expenses. The Martins could likely prove damages of at least $81,928.63 at trial. B. The Merits of the Estate's Defense C. Johnson's Relative Fault [I]n an action or proceeding where the adverse party sues or defends as executor, administrator or legal representative of any deceased person, or as deriving right or title by, through or from any deceased person, . . . then a party in interest or to the record, shall not be admitted to testify in his or her own behalf as to any transaction had by him or her with, or any statement made to him or her, or in his or her presence, by any such deceased . . . person. D. Risks and Expenses of Continued Litigation and the Estate's Ability To Pay ¶26 As Metropolitan notes, the record contains no evidence as to the Estate's assets or its ability to pay. Nonetheless, the risks and expenses to the Estate of continued litigation are high, especially given that Metropolitan has denied coverage and instituted an action seeking a declaration of no coverage. Moreover, the Estate cannot close probate until the Martins' claim is resolved, making the burden of continued litigation particularly heavy. E. Evidence of Bad Faith, Collusion, or Fraud F. Metropolitan's Interests ¶28 Metropolitan asserts that the Estate's and the Martins' objective was to make it responsible for paying the settlement amount. It reasserts its argument that this lawsuit is an improper forum to determine if the settlement was reasonable. We have already addressed and rejected Metropolitan's improper forum argument. Still, Metropolitan argues before us that it had no opportunity for discovery in this action and, thus, could not evaluate the reasonableness of the settlement. But Metropolitan did not advance this argument before the trial court; nor did it ask for more discovery time before the court made its reasonableness ruling. Because Metropolitan did not raise these issues below, we decline to consider them. RAP 2.5(a); Better Fin. Solutions, 117 Wn. App. at 912-13. ¶29 In conclusion, the trial court did not abuse its discretion in finding the proposed settlement reasonable. III. ATTORNEY FEES ON APPEAL ¶30 The Martins and the Estate request their attorney fees on appeal. They assert that the trial court entered a judgment for attorney fees below and that the Model Toxics Control Act mandates an award of attorney fees to a party who prevails on a claim for remedial action costs. ¶32 Affirmed. HUNT and QUINN-BRINTNALL, JJ., concur.