[No. 79027-2. En Banc.]
Argued June 14, 2007. Decided October 11, 2007.
[1] Judgment — Summary Judgment — Review — Supreme Court — Standard of Review. The Supreme Court reviews a summary judgment de novo. [2] Insurance — Duty To Defend — Declaratory Action To Determine Coverage Obligation — Risks — Bad Faith. An insurer may defend an insured under a reservation of rights while also seeking a judicial declaration concerning its coverage obligation, but the insurer must not seek the adjudication of factual matters disputed in the underlying litigation because advocating a position adverse to the insured's interests would constitute bad faith by the insurer. [3] Insurance — Duty To Defend — Reservation of Rights — Specific Obligations of Insurer. An insurer defending its insured under a reservation of rights has an enhanced obligation of fairness toward the insured because of the potential conflicts that are inherent in the reservation of rights defense. Fulfillment of this enhanced obligation requires the insurer to (1) thoroughly investigate the claim against the insured, (2) retain competent defense counsel for the insured, (3) fully inform the insured of all developments relevant to the insured's policy coverage and the progress of the insured's lawsuit, and (4) refrain from engaging in any action that would demonstrate a greater concern for the insurer's monetary interest than for the insured's financial risk. [4] Insurance — Good Faith — Duty — In General. All insurance companies must conduct their relations with their insureds in good faith. [5] Insurance — Good Faith — Fiduciary Duty — Interest of Policyholder. In addition to mere honesty and lawfulness of purpose, an insurer must deal fairly with its insured, giving equal consideration in all matters to the insured's interests. The insurer's duty is fiduciary in nature but is something less than a true fiduciary relationship, which would require the insurer to place the insured's interests above its own. [6] Insurance — Good Faith — Insurer's Bad Faith — Insured's Right of Action — Nature of Action. An insured's action against its insurer for bad faith handling of an insurance claim sounds in tort. [7] Insurance — Good Faith — Insurer's Bad Faith — Insured's Right of Action — Elements — Tort Principles. An insured's claim against its insurer for bad faith is analyzed by applying the same principles as any other tort: duty, breach of that duty, and damages proximately caused by any breach of duty. [8] Insurance — Good Faith — Insurer's Bad Faith — Insured's Right of Action — Elements — Nature of Breach. An insured's claim against its insurer for bad faith requires a showing that the insurer's breach of the insurance contract was unreasonable, frivolous, or unfounded. [9] Insurance — Duty To Defend — Reservation of Rights — Duty of Good Faith — Scope. An insurer defending its insured under a reservation of rights owes the insured a duty to refrain from engaging in any unreasonable, frivolous, or unfounded action demonstrating a greater concern for its own monetary interest than for the insured's financial risk. [10] Insurance — Duty To Defend — Reservation of Rights — Arbitration Proceeding — Insurer's Bad Faith — Discovery Requests — Ex Parte Communications With Arbitrator. An insurer defending an insured in an arbitration proceeding under a reservation of rights while pursuing a declaratory action to determine the scope of its coverage obligation acts in bad faith by filing and submitting discovery requests to and engaging in ex parte communications with the arbitrator while the arbitration proceeding is pending. [11] Insurance — Duty To Defend — Reservation of Rights — Duty of Good Faith — Prejudice to Insured's Tort Defense. An insurer's enhanced duty to its insured when defending under a reservation of rights does not allow the insurer to engage in conduct that might prejudice its insured's tort defense. [12] Insurance — Duty To Defend — Reservation of Rights — Duty of Good Faith — Liability for Entire Award or Settlement. An insurer defending under a reservation of rights is not automatically liable to pay the entire award or settlement amount so long as the insurer acts in good faith. [13] Insurance — Duty To Defend — Reservation of Rights — Arbitration Proceeding — Covered Portion of Award or Settlement — Insured's Burden of Proof. An insurer defending an insured in an arbitration under a reservation of rights does not face two unreasonable options: risking a bad faith claim by litigating coverage issues prior to the arbitration or paying the entire settlement amount regardless of whether it is based on covered claims. Absent a successful claim of bad faith and resulting coverage by estoppel, the burden remains with the insured to prove how much of the award or settlement should be allocated to covered claims. [14] Insurance — Good Faith — Insurer's Bad Faith — Insured's Right of Action — Elements — Harm — Presumptive Amount. The presumptive measure of an insured's harm caused by an insurer's act of bad faith is the settlement amount or judgment. [15] Insurance — Duty To Defend — Reservation of Rights — Duty of Good Faith — Breach — Harm — Rebuttable Presumption. When an insured shows by the preponderance of the evidence that its insurer acted in bad faith in handling the insured's claim for coverage for a liability to a third party, it is presumed that the insured has suffered harm. To rebut the presumption, the insurer must show by a preponderance of the evidence that its acts did not harm or prejudice the insured. The presumption is not rebutted simply by the insured's assignment to another of the insured's claims against the insurer, coupled with a covenant not to execute judgment against the insured. [16] Insurance — Duty To Defend — Reservation of Rights — Duty of Good Faith — Breach — Remedy. An insurer that in bad faith handles an insured's claim under a reservation of rights is estopped from denying coverage for the claim. [17] Insurance — Good Faith — Insurer's Bad Faith — Coverage by Estoppel — Damages — Settlement — Reasonableness. An insurer that is estopped from denying coverage for an insured's liability to a third party because the insurer acted in bad faith is bound by any settlement negotiated between the insured and the third party that a court approves as reasonable if the settlement is not the product of fraud or collusion, even if such amount exceeds the policy limits. The insurer has the burden of demonstrating fraud or collusion. Nature of Action: A commercial liability insurer sought a declaration of its coverage obligation to an insured who was involved in a construction defect dispute that the insurer agreed to defend under a reservation of rights. The insurer initially filed the declaratory action shortly before the commencement of arbitration proceedings between the insured and the construction defect claimants. While the arbitration was pending, the insurer issued to the arbitrator a subpoena duces tecum and engaged in ex parte communications with the arbitrator for the purpose of obtaining information that would help the insurer determine which parts of any arbitration award would be insured and which would not. The insurer later struck the subpoena and voluntarily dismissed the declaratory action. The insured and the construction defect claimants then stipulated to an arbitration award, whereby the insured assigned to the construction defect claimants, in exchange for a covenant not to execute, its claims against the insurer for breach of contract and bad faith. The insurer later refiled its declaratory action for a determination of the insurance coverage issues. The construction defect claimants, as assignees of the insured, counterclaimed for breach of contract and bad faith. Superior Court: The Superior Court for San Juan County, No. 04-2-05012-1, Vickie I. Churchill, J., on February 2 and November 12, 2004, confirmed the arbitration award, reduced the arbitration award to judgment, and entered a judgment in favor of the construction defect claimants in the declaratory action. The court ordered the insurer to pay the full amount of the arbitration award plus interest, attorney fees, and costs. Court of Appeals: The court reversed the judgment at 132 Wn. App. 803 (2006), holding that the insurer did not act in bad faith when it subpoenaed the arbitrator and sent him ex parte correspondence and that the insurer presented sufficient evidence to rebut any presumption that the insured was harmed. Supreme Court: Holding that the insurer's subpoena and ex parte communication to the arbitrator constituted bad faith, that the insurer did not rebut the resulting presumption of harm to the insured, and that the insurer did not raise a genuine issue of material fact as to the reasonableness of the settlement amount, the court reverses the decision of the Court of Appeals and remands the case to the trial court for further proceedings. Robert B. Gould- and Brian J. Waid- (of Law Offices of Robert B. Gould), for petitioners. Brent W. Beecher- and James M. Beecher- (of Hackett, Beecher & Hart) and K.C. Webster-, for respondent. Andrew C. Cook- and Julie M. Sund- on behalf of Building Industry Association of Washington, amicus curiae. Stewart A. Estes-, Joseph D. Hampton-, Daniel L. Syrhe-, Russell C. Love-, and David M. Jacobi- on behalf of Washington Defense Trial Lawyers, amicus curiae. Bryan P. Harnetiaux- and Gary N. Bloom- on behalf of Washington State Trial Lawyers Association Foundation, amicus curiae. EN BANC ¶1 FAIRHURST, J. — Respondent/cross-petitioner Mutual of Enumclaw Insurance Company (MOE) defended its insured, petitioner/cross-respondent Dan Paulson Construction, Inc. (DPCI), against construction defect claims brought by petitioners/cross-respondents Karen and Joseph Martinelli. Shortly before the arbitration hearing on those claims, MOE subpoenaed the arbitrator, explaining in two ex parte letters to the arbitrator that it needed information to resolve its coverage dispute with DPCI. During the hearing, DPCI and the Martinellis reached a settlement, the terms of which included assignment of DPCI's claims against MOE to the Martinellis and the Martinellis' covenant not to execute the resulting judgment against DPCI. ¶2 MOE brought this declaratory judgment action against DPCI and the Martinellis to resolve its coverage issues, and the Martinellis cross-complained. The Martinellis now seek review of the Court of Appeals decision reversing summary judgment in their favor on their insurance bad faith claim against MOE. We hold that MOE's subpoena and ex parte communications to the arbitrator constituted bad faith, that MOE did not rebut the resulting presumption of harm to DPCI, and that MOE has not raised a genuine issue of material fact with respect to whether the settlement amount is reasonable. I. FACTUAL AND PROCEDURAL HISTORY Background ¶3 In February 1998, the Martinellis contracted with DPCI to build their new home in Friday Harbor, San Juan County. ¶4 DPCI maintained a comprehensive general liability insurance policy with MOE. DPCI tendered defense in the arbitration proceeding to MOE, which informed DPCI that it would defend under a reservation of rights. Consequently, MOE provided DPCI with assigned defense counsel ¶5 DPCI's policy excluded coverage for DPCI's work but provided coverage for work performed for DPCI by subcontractors. Therefore, to ascertain which of the Martinellis' claims, if any, were covered, MOE sought to determine which entities performed what work on the Martinellis' home, what construction defects resulted from each entity's work, and the cost to repair each defect. Both DPCI and the Martinellis "cooperated" with MOE's requests for information and documentation, "providing all that MOE requested." Clerk's Papers (CP) at 649 (San Juan County Superior Ct. letter op. (Aug. 19, 2004)) (hereinafter letter op.). ¶6 Ultimately, in October 2003, MOE authorized settlement authority of up to $550,000. The Martinellis offered to settle for $1 million, an amount within the limits of DPCI's policy. Both DPCI's assigned defense counsel and DPCI's private counsel recommended that MOE accept the Martinellis' offer. A settlement was not reached before arbitration. ¶7 By late October 2003, the arbitration hearing had been scheduled, with a start date of January 6, 2004. A few days after scheduling, the parties informed the arbitrator that they had agreed, at DPCI's request, that any award would be a lump sum award. This deviated from the arbitrator's usual practice of providing a detailed, itemized award. MOE did not learn of the lump sum award agreement until after the arbitration hearing had begun. ¶8 MOE attempted to participate in the arbitration hearing. However, MOE did not formally move to intervene and did not ask the arbitrator for permission to attend, as allowed by AAA rules. Mut. of Enumclaw Ins. Co. v. Dan Paulson Constr., Inc., 132 Wn. App. 803, 812 n.11, 134 P.3d 240 (2006) (MOE v. DPCI) (alteration in original) (quoting AM. ARBITRATION ASS'N, CONSTRUCTION INDUSTRY ARBITRATION RULES AND MEDIATION PROCEDURE (INCLUDING PROCEDURE OF LARGE, COMPLEX CONSTRUCTION DISPUTES), Rule R-24, Attendance at Hearings (amended and effective Sept. 15, 2005) (AAA 2005)); see also CP at 445. ¶9 On November 21, 2003, MOE filed a declaratory judgment action against DPCI and the Martinellis in San Juan County Superior Court. The purpose of the action was to resolve coverage issues regarding which of the Martinellis' claims were covered and which were excluded under DPCI's policy. MOE did not serve the complaint on either party. On December 15, 2003, MOE informally notified DPCI of the declaratory judgment action by e-mail. The Martinellis did not learn that MOE had filed the action until late December 2003 or early January 2004. MOE did not perfect this first declaratory judgment action. The arbitration ¶10 On December 30, 2003, MOE issued a subpoena duces tecum to the arbitrator, scheduling the arbitrator's deposition upon written questions after the arbitration was concluded. In addition to making a comprehensive request for documents, the subpoena sought the arbitrator's thoughts regarding the arbitration. With the subpoena, MOE sent the arbitrator an ex parte cover letter explaining its coverage issues with DPCI. ¶11 DPCI and the Martinellis received the subpoena on Friday, January 2, 2004, two business days prior to the scheduled start of the arbitration hearing. (They did not receive the cover letter, which MOE sent only to the arbitrator. They first learned of the letter from the arbitrator at the commencement of the hearing.) AAA, the Martinellis, and both DPCI's private counsel and assigned counsel promptly demanded that MOE withdraw the subpoena. When MOE disclosed to the Martinellis its intention to send a second letter to the arbitrator, the Martinellis again protested. However, on day two of the hearing, MOE sent a second letter to the arbitrator and all parties, slightly narrowing the subpoena and reiterating its explanation of its coverage dispute with DPCI. Subsequently, MOE struck the subpoena and dismissed its first declaratory judgment action. ¶12 During the sixth day of the hearing, the parties reached a negotiated settlement and entered into a stipulated settlement agreement. The agreement provided (1) a lump sum arbitration award of $1.3 million in favor of the Martinellis against DPCI, (2) assignment of all DPCI's insurance coverage and bad faith claims against MOE to the Martinellis, and (3) a covenant by the Martinellis not to execute the arbitration award/judgment against DPCI. The parties submitted their proposed award to the arbitrator, who found it reasonable and approved it. On February 2, 2004, after proper notice and hearing, the San Juan County Superior Court confirmed the arbitration award and reduced it to judgment. The instant declaratory judgment action ¶13 On January 22, 2004, MOE filed the instant declaratory judgment action against DPCI and the Martinellis, seeking to determine what portions of the arbitration award/judgment were payable by MOE pursuant to DPCI's policy. MOE's claim acknowledged that "[s]ome of the damage claimed against [DPCI] is covered by the [MOE] policy, but much of it is subject to policy exclusions." CP at 2. The Martinellis (as DPCI's assignees) then demanded that MOE pay "those amounts which [MOE] acknowledges are due under its policy," which they identified as at least MOE's final settlement authority of $550,000. CP at 212. After MOE refused, the Martinellis counterclaimed in MOE's declaratory judgment action, alleging the contract and insurance bad faith claims assigned to them by DPCI. ¶14 The Martinellis and MOE filed cross-motions for partial summary judgment. MOE asked the court to hold, inter alia, that MOE was "not liable to the Martinellis for bad faith." CP at 259-80. The Martinellis objected to MOE's motion regarding bad faith with respect to interference in the arbitration because MOE had invoked privilege and prevented the Martinellis from completing their deposition of MOE's coverage counsel. The Martinellis argued, therefore, that there remained issues of material fact relative to MOE's motion. ¶15 The Court of Appeals reversed, holding that MOE had not acted in bad faith when it subpoenaed the arbitrator and sent him ex parte correspondence because MOE "had a reasonable need to know the elements of a potential damage award." Mut. of Enumclaw Ins. Co. v. Dan Paulson Constr., Inc., 132 Wn. App. 803, 813, 134 P.3d 240 (2006) (MOE v. DPCI). It also held that MOE had rebutted the presumption of harm because if coverage by estoppel were imposed, MOE's liability "would grossly exceed the alleged harm" to the insured. ¶16 The Martinellis moved for reconsideration, which the Court of Appeals denied. We granted review. Mut. of Enumclaw Ins. Co. v. Dan Paulson Constr., Inc., 159 Wn.2d 1018, 157 P.3d 403 (2007). II. ISSUES A. Did MOE act in bad faith by its subpoena and ex parte communications to the arbitrator? B. If MOE's conduct constituted bad faith, did MOE succeed in rebutting the resulting presumption of harm? C. Did MOE raise a genuine issue of material fact concerning the reasonableness of the underlying settlement? D. Are the Martinellis entitled to attorney fees? III. ANALYSIS ¶18 Resolving this matter requires initially that we determine whether MOE acted in bad faith while defending DPCI under a reservation of rights. A. MOE acted in bad faith by its subpoena and ex parte communications to the arbitrator ¶23 The facts are undisputed. On December 30, 2003, one week prior to the start of the Martinellis/DPCI arbitration hearing, MOE subpoenaed the arbitrator in that hearing under purported authority derived from its unperfected first declaratory judgment action. MOE's subpoena sought "[a]ll documents submitted . . . as evidence, from any source," and "[a]ll correspondence between [the arbitrator] and the parties," as well as the arbitrator's thought processes, including which elements of each witness's testimony he found credible or not credible, his detailed itemization of the arbitration award, and his analysis of which work had been performed by subcontractors. CP at 127. ¶24 MOE accompanied the subpoena with an ex parte letter informing the arbitrator that MOE was defending DPCI "under a reservation of rights, which reservation is based primarily on the 'work' exclusion" in DPCI's policy. Damage to Your Work "Property damage" to "your work" arising out of it or any part of it and included in the "products-completed operations hazard". This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor. CP at 133. ¶25 MOE provided the subpoena to DPCI and the Martinellis on Friday, January 2, 2004, two business days prior to the start of the hearing. It did not provide them with the letter—which it sent solely to the arbitrator. DPCI and the Martinellis were first informed of the letter by the arbitrator at the commencement of the hearing. Upon receipt of the subpoena, AAA (on behalf of the arbitrator), DPCI (both private counsel and assigned counsel), and the Martinellis vociferously objected. On day two of the hearing, during a conference about the subpoena and letter, MOE disclosed to the Martinellis its intention to send a second letter to the arbitrator. The Martinellis "protested and urged MOE to not engage in any more direct communications with the arbitrator pending AAA Arbitration's retention of counsel to represent the arbitrator." CP at 646 (letter op.). ¶26 MOE ignored that request and proceeded to send a second letter directly to the arbitrator as well as to counsel for both parties. In this letter, MOE asserted that the subpoena was not improper but did agree to strike those questions relating to the credibility of witnesses. MOE also reiterated the explanation of its coverage dispute with DPCI. [T]he policy at issue is not first party coverage; it is a liability policy, and any obligation that [MOE] may eventually have (other than defense) is based entirely on the Award. Particularly in light of both parties['] refusal to allow a [MOE] representative even to be present at the arbitration, objections to the present discovery seem ill-founded. CP at 151-52. ¶27 Through its subpoena and not one, but two, ex parte letters to the arbitrator, MOE clearly showed great concern for its monetary interest in establishing which of the Martinellis' claims were excluded from coverage under DPCI's policy. At the same time, MOE displayed little to no concern for how its conduct might affect DPCI's financial risk, which was then being litigated in the arbitration hearing. MOE's great concern for its own interest, and lack of concern for DPCI's risk, conclusively demonstrates that MOE had "a greater concern for [MOE's] monetary interest than for [DPCI's] financial risk." Tank, 105 Wn.2d at 388. Therefore, MOE acted in bad faith. ¶28 We reject the notion that MOE's conduct should be excused as merely "somewhat clumsy" and "improper." MOE v. DPCI, 132 Wn. App. at 813. Contrary to the Court of Appeals' understanding, MOE did not face "two unreasonable options: risking a bad faith claim by litigating coverage issues prior to the arbitration or paying the entire settlement amount regardless of whether it was based on covered claims." Id. There was no justification for MOE's conduct. ¶29 MOE did risk a bad faith claim if it litigated coverage issues with DPCI prior to the arbitration hearing. While defending under a reservation of rights, an insurer acts in bad faith if it pursues a declaratory judgment that it has no duty to defend and that "action might prejudice its insured's tort defense." THOMAS V. HARRIS, WASHINGTON INSURANCE LAW § 14.2, at 14-4 (2d ed. 2006). MOE sought to establish which claimed defects were excluded from coverage because they resulted from work performed by DPCI. Simultaneously, DPCI was contesting liability for any defects in the underlying arbitration action. To the extent that MOE prevailed, it would have directly prejudiced DPCI's position in the arbitration, clearly an act of bad faith. ¶30 However, MOE was not facing the alternative to "pay[ ] the entire settlement amount regardless of whether it was based on covered claims." MOE v. DPCI, 132 Wn. App. at 813. An insurer defending under a reservation of rights is not automatically liable to pay the entire settlement amount—provided the insurer acts in good faith. The settlement amount or judgment is "the presumptive measure of an insured's harm caused by an insurer's tortious bad faith." Besel v. Viking Ins. Co. of Wis., 146 Wn.2d 730, 738, 49 P.3d 887 (2002) (emphasis added). Absent a successful bad faith claim and the resulting coverage by estoppel, the insured "still has the burden of proving how much of the [settlement] should be allocated to covered claims." ¶31 MOE's course of conduct in pursuing resolution of its coverage issues immediately prior to and during the arbitration trial directly interfered in the defense it was providing to DPCI. The Martinellis correctly argue that simply "filing a parallel declaratory judgment action does not immunize an insurer's bad faith conduct" and "does not provide insurers with an unfettered license to interfere in the insured's liability defense through 'unreasonable, frivolous, or unfounded' conduct." Martinelli Suppl. Br. at 3 (quoting Smith, 150 Wn.2d at 484). By demonstrating "a greater concern for [its own] monetary interest than for [DPCI's] financial risk," MOE breached the duty it owed to DPCI and consequently acted in bad faith. Tank, 105 Wn.2d at 387-89. B. MOE did not rebut the presumption of harm arising from its bad faith conduct ¶32 Having determined that MOE acted in bad faith, we next consider whether MOE rebutted the presumption of harm that arises from that conduct. We conclude that it did not. ¶34 Butler explained that imposing a presumption of harm is warranted because " '[t]he insured should not have the almost impossible burden of proving that he or she is demonstrably worse off because of [the insurer's actions].' " Id. at 390 (emphasis added) (second alteration in original) (quoting ALLAN D. WINDT, INSURANCE CLAIMS AND DISPUTES: REPRESENTATION OF INSURANCE COMPANIES AND INSUREDS § 2.09, at 40-41 (2d ed. 1988)). "[S]hifting of the burden [to the insurer] ameliorates the difficulty insureds have in showing that a particular act [by the insurer] resulted in prejudice. It also recognizes the fact that loss of control of the case is in itself prejudicial to the insured." Id. at 392 (citation omitted). ¶35 MOE argues that requiring an insurer to prove a negative—that its bad faith conduct did not harm or prejudice the insured—effectively imposes an almost impossible burden on the insurer. MOE's argument echoes the concern raised by the dissent in Butler. There, Justice James M. Dolliver objected that presuming a harm that encompasses "the whole penumbra of loss" "is unreasonable . . . because [the insurer] can never rebut it." Id. at 407 (Dolliver, J., dissenting). As did the Butler majority, we acknowledge, but reject, this argument. ¶36 The nature of the tort of insurer bad faith dictates that an " 'almost impossible burden' " of proof will fall either on the insured or the insurer. Id. at 390 (quoting WINDT, supra, § 2.09, at 40-41). As the Butler court recognized, " '[t]he course cannot be rerun, no amount of evidence will prove what might have occurred if a different route had been taken.' " Id. at 391 (quoting Transamerica Ins. Group v. Chubb & Son, Inc., 16 Wn. App. 247, 252, 554 P.2d 1080 (1976)). Either the insured will face the almost impossible burden of proving that " 'he or she is demonstrably worse off because of' " the insurer's bad faith or the insurer will face the almost impossible burden of proving the reverse. Id. at 390 (quoting WINDT, supra, § 2.09, at 40-41). As between the insured and the insurer, it is the insurer that controls whether it acts in good faith or bad. Therefore, it is the insurer that appropriately bears the burden of proof with respect to the consequences of that conduct. ¶37 With the Butler presumption of harm, this court announced a policy choice to protect third-party insureds and dissuade insurer bad faith. In the more than 15 years that have elapsed since Butler, the legislature has not altered the Butler presumption, nor has this court retreated from it. We agree that "an insured should not be required to prove what might have happened had the insurer not breached its duty to defend in bad faith; that obligation rightfully belongs to the insurer who caused the breach." Kirk, 134 Wn.2d at 563. "[I]mposing a presumption of prejudice only after the insured shows bad faith adequately protects the competing societal interests involved. It provides a meaningful disincentive to insurers' bad faith conduct while protecting insurers from frivolous claims." Butler, 118 Wn.2d at 392. We reaffirm the Butler presumption of harm framework. As we have stated before, "[t]o hold otherwise would provide an incentive to an insurer to breach its policy." Truck, 147 Wn.2d at 766. ¶38 Turning to the facts of this case, we hold that MOE did not successfully rebut the presumption of harm that arose from its bad faith conduct. MOE did not prove that its subpoena and ex parte communications with the arbitrator prior to and during the arbitration hearing "did not harm or prejudice [DPCI]." Butler, 118 Wn.2d at 394. To the contrary, the record supports that MOE's conduct caused significant uncertainty and increased risk for DPCI's defense. I was upset when I learned of [MOE]'s subpoena to the [arbitrator]. [I]t created a lot of uncertainty because neither I nor my attorneys could determine how the Arbitrator might react to the subpoena. I was very concerned that the subpoena would prompt the Arbitrator to withdraw or otherwise delay the arbitration hearing, or that it might have resulted in a challenge to the outcome of the hearing by the Martinellis. CP at 531, ¶ 4 (Decl. of Dan Paulson). DPCI's private counsel stated: I was very upset that [the subpoena and ex parte contacts] had happened, and . . . I had concerns about how that would affect [the arbitrator] and how that would affect [the Martinellis and their counsel] and how that would affect my client and [assigned defense counsel's] ability to prepare for the case—or the imminent arbitration hearing—with that kind of issue present in everybody's thought processes at that time. CP at 513 (Dep. of Griffith F. Flaherty, May 21, 2004). DPCI's assigned defense counsel expressed "significant displeasure" to MOE regarding MOE's issuing of the subpoena and said that "there was no doubt in my mind that [the arbitrator] was displeased." CP at 527-28 (Dep. of Gregory G. Jones, May 21, 2004). ¶39 We reject the trial court's initial conclusion that DPCI's decision to proceed with the arbitration despite MOE's bad faith conduct, coupled with a subsequent settlement within policy limits, effectively rebuts the presumption that MOE's bad faith harmed DPCI. the arbitrator and the parties all agreed to continue with the arbitration despite the subpoena and cover letters, that the difference between a lump sum settlement award and a differentiated award did not lead to a different financial outcome for [DPCI], that the $1.3 million award came well within the policy limits, and that any affect on [DPCI's] credit rating or reputation would have occurred whether [DPCI] entered into a stipulated agreement or not. MOE v. DPCI, 132 Wn. App. at 814. ¶40 Because MOE failed to demonstrate that its subpoena and ex parte communications "did not harm or prejudice" DPCI, id. at 394, we need not determine whether the attorney fees incurred by DPCI in responding to that subpoena, standing alone, would be sufficient to prevent MOE from rebutting the presumption of harm. We do note, however, that MOE and the Court of Appeals merely assumed that the trial court reversed its conclusion regarding the presumption based on DPCI's attorney fees. On reconsideration, the Martinellis argued both that DPCI suffered actual harm in the form of attorney fees incurred in responding to MOE's subpoena and that MOE's bad faith had created increased and unexpected risks for DPCI that themselves constitute harm. The trial court held simply that MOE had "failed to [ ] rebut the presumption of harm imposed under [Butler] as a result of its bad faith," without stating why it changed its ruling. CP at 690. ¶41 Finally, we emphasize that while we are not retreating from Butler, neither are we extending it. The presumption of harm has previously been applied where the insurer's bad faith was associated with its underlying defense of the insured. C. MOE did not raise a genuine issue of material fact concerning the reasonableness of the underlying settlement "[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." Id. (alteration in original) (internal quotation marks omitted) (quoting Glover v. Tacoma Gen. Hosp., 98 Wn.2d 708, 717, 658 P.2d 1230 (1983), overruled on other grounds by Crown Controls, Inc. v. Smiley, 110 Wn.2d 695, 756 P.2d 717 (1988)). ¶43 Three different triers of fact—the arbitrator and two trial courts—have determined that the Martinellis/DPCI settlement amount is reasonable. ¶44 First, the San Juan County Superior Court found the award to be reasonable when it confirmed the award and reduced it to judgment. MOE concedes that it had notice of that proceeding but did not seek to intervene therein. We reject MOE's contention that participating would have been futile because the trial court's authority to overturn the arbitrator's finding of reasonableness was limited by the statutory scheme governing arbitration awards. ¶45 Second, MOE did challenge the award in the instant declaratory judgment action. MOE tried and failed to persuade the trial court that the settlement was the product of fraud or collusion. The trial court on summary judgment denied MOE's affirmative defense of fraud or collusion with respect to the reasonableness of the arbitration award/judgment and held that "no genuine issue of fact exists as to the reasonableness" of the award, which "is reasonable as a matter of law." CP at 690 (letter op.). MOE has not raised a genuine issue of fact concerning the reasonableness of the underlying settlement. D. The Martinellis are entitled to attorney fees ¶46 The Martinellis request their reasonable attorney fees and costs on appeal, pursuant to RAP 18.1(a). As the prevailing party, the Martinellis should be awarded their fees and costs in connection with this appeal. IV. CONCLUSION ¶47 We hold that MOE acted in bad faith through its subpoena and ex parte communications to the arbitrator. We also hold that MOE did not rebut the resulting presumption of harm to DPCI. Finally, we hold that MOE has not raised a genuine issue of material fact with respect to whether the settlement amount is reasonable. We reverse the Court of Appeals and remand to the trial court for further proceedings consistent with this opinion. ALEXANDER, C.J., and C. JOHNSON, MADSEN, SANDERS, BRIDGE, CHAMBERS, OWENS, and J.M. JOHNSON, JJ., concur.