Childress et al v. Liberty Mutual Fire Insurance Company

Filing 120

ORDER denying 97 Defendant's Motion to Approve settlement and to issue a claim bar order by Judge Robert S. Lasnik.(MD)

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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
AT SEATTLE

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HENRY CHILDRESS, et al.,

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Plaintiffs,
Case No. C10-059RSL
v.
LIBERTY MUTUAL FIRE INSURANCE
COMPANY, et al.,

ORDER DENYING MOTION TO
APPROVE SETTLEMENT AND TO
ISSUE A CLAIMS BAR ORDER

Defendants.

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I. INTRODUCTION

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This matter comes before the Court on a motion filed by defendant Liberty Mutual Fire

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Insurance Company (“Liberty Mutual”) to approve its proposed settlement with plaintiffs and to

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bar the other defendants from asserting claims against it.

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At the request of plaintiffs and Liberty Mutual, the Court heard oral argument in this

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matter on June 6, 2011. For the reasons set forth below, the Court denies Liberty Mutual’s

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motion because the proposed claims bar is unreasonable.

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II. DISCUSSION

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In February 2011, the Court granted plaintiffs’ motion for partial summary judgment and

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held that Liberty Mutual breached the insurance contract by cancelling the policy and refusing to

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pay plaintiffs’ loss. Subsequently, the parties engaged in a settlement conference before United

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ORDER DENYING MOTION - 1

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States Magistrate Judge James Donohue. The conference lasted an entire day and continued the

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following morning. After Liberty Mutual and plaintiffs engaged in further negotiations, they

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agreed to a proposed settlement to resolve all claims between them, subject to Court approval

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and an order barring defendants from asserting further claims against Liberty Mutual.

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Specifically, the proposed settlement agreement includes the following provision,
This settlement is expressly contingent upon a determination by the Court in the
Litigation as follows: (1) that this settlement is reasonable; (2) that the $55,000 payment
above is a reasonable settlement for all obligations of the Company to make any
payments for the repair of the Childresses’ home; and (3) that any and all claims and/or
cross-claims that were alleged or that could have been alleged against the Company are
dismissed and/or barred, with prejudice.

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Declaration of John Silk, (Dkt. #98), Ex. 4. The terms of the proposed settlement, which are set
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forth in the motion and Memorandum of Settlement, include a payment of $400,000 in three
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installments: (1) $25,000 to plaintiffs, (2) $55,000 into the Court registry for repairs to plaintiffs’
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home, and (3) $320,000 in a check made payable to plaintiffs’ counsel. Id.
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A.

The Bar Order.

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The Court has “the inherent equitable power to enter an order precluding subsequent
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claims for contribution (and indemnity) by non-settling parties in the litigation with notice of the
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proposed order, so long as their rights are protected by it.” Zidell Marine Corp. v. Beneficial
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Fire & Cas. Ins. Co., Case No. 03-5131RBL at p. 2 (W.D. Wash. May 24, 2004); Franklin v.
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Kaypro Corp., 884 F.2d 1222, 1225 (9th Cir. 1989) (explaining that a bar order “constitutes a
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final discharge of all obligations of the settling defendants and bars any further litigation of
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claims by nonsettling defendants against settling defendants.”).
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After Liberty Mutual filed this motion, the Court granted MeritPlan’s motion for
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summary judgment and granted plaintiffs’ motion striking Countrywide’s proposed new
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counterclaims and cross claim as untimely. In light of those developments, the parties’
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disagreements related to this motion now number only two: (1) whether the $55,000 set aside in
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the settlement agreement for structural repairs should be paid directly to Countrywide, and (2)
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whether MeritPlan should be precluded from asserting a contribution claim against Liberty
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ORDER DENYING MOTION - 2

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Mutual. Regarding the first issue, both MeritPlan and Countrywide argue that the Court should

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order Liberty Mutual to pay the $55,000 allocated for structural repairs to Countrywide.

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Countrywide’s claim that it is entitled to the proceeds under the Liberty Mutual policy is

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untenable. Countrywide is not named as a loss payee or insured under that agreement. Nor will

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the Court reform the insurance contract as Countrywide belatedly urges. The Court’s recent

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order striking Countrywide’s new claims precludes Countrywide from pursuing such a cross

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claim against Liberty Mutual.

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Although Countrywide might have a claim to the funds from plaintiffs under the Deed of

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Trust, Countrywide has not asserted that claim in this litigation. Regardless, the proposed bar

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order would not affect that claim. Finally, the issue is largely irrelevant because the funds will

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be paid to repair the home, as Countrywide urges, and all parties agree that the $55,000 allocated

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should be sufficient to accomplish that goal. Therefore, the Court will not order that the funds

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be paid directly to Countrywide.

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The Court also considers whether to bar any claim for contribution and/or indemnity as

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Liberty Mutual urges. MeritPlan notes that it paid $15,100.40 to plaintiffs under the lender-

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placed policy.1 Its policy contains a provision stating that coverage terminates if other insurance

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is in effect, and the Court has ruled that the Liberty Mutual policy was in effect. Based on those

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facts, MeritPlan argues that it is entitled to contribution from Liberty Mutual because it paid

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money that Liberty Mutual should have paid. Liberty Mutual contends that MeritPlan’s

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contribution claim is untimely. Although the Court might not allow MeritPlan to assert the cross

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claim in this litigation at this late date, MeritPlan has not waived the contribution claim. Liberty

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Mutual has not cited any authority to show that MeritPlan was required to assert the claim in this

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lawsuit. Liberty Mutual also argues that all suits under its insurance contract must be filed

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MeritPlan paid Countrywide $45,548.79 for the loss. As Liberty Mutual notes,
approximately $30,000 was “inexplicably retained” by Countrywide. Liberty Mutual’s Reply at
p. 8. In light of those facts, Countrywide’s claim that the $55,000 for repairs should be paid to it
directly is not well taken.

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ORDER DENYING MOTION - 3

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within one year of the date of the loss. MeritPlan, however, is not a party or third party

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beneficiary to that contract and cannot be bound by its suit limitation.

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In contrast, MeritPlan’s argument that it paid for repairs that Liberty Mutual was

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obligated to pay has some appeal.2 If it were not for Liberty Mutual’s wrongful cancellation of

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its policy, MeritPlan would never have paid for any of plaintiffs’ loss. Liberty Mutual argues

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that a bar order is required to limit its potential liability to third parties; otherwise, it lacks the

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certainty needed to settle with plaintiffs. However, because this Court has already decided

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dispositive motions, this case presents the rare situation where the settling insurer knows the

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amount of its potential liability to third parties: $15,100.40, the amount MeritPlan paid to

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plaintiffs. MeritPlan’s liability, and the amount of its contribution claim, cannot increase

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because the Court has granted summary judgment in its favor. For that reason, neither MeritPlan

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nor any other defendant is facing any liability in this lawsuit for which it might later seek

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contribution from Liberty Mutual. Therefore, the usual justifications for granting a bar order,

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encouraging early settlement and avoiding uncertainty for the settling insurer vis-a-vis non-

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settling defendants, are not present in this case.

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Although public policy favors settlement, it also favors encouraging insurers to promptly

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protect their insureds and pay claims. In this case, MeritPlan did so; Liberty Mutual did not.

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The basis of any claim MeritPlan might have against Liberty Mutual is based on the fact that

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MeritPlan paid under its policy after Liberty Mutual wrongfully cancelled. Under those

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circumstances, it would be inequitable to bar MeritPlan’s claim, and the Court will not enter the

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bar order Liberty Mutual requests.

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Despite refusing to enter the bar order, the Court believes that the settlement in this case

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should go forward. The remainder of the terms are reasonable. Plaintiffs have claimed damages

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and attorney’s fees of approximately $477,000 against Liberty Mutual, plus $500,000 in general

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Liberty Mutual argues that MeritPlan has no right to equitable contribution under these
circumstances. Reply at pp. 7-8. The Court will not adjudicate the merits of any potential
contribution claim at this point when no such claim has been asserted.

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ORDER DENYING MOTION - 4

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damages. The Court has ruled in plaintiffs’ favor on their breach of contract claim, so plaintiffs

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are entitled to recover on the contract for their repair costs, personal property damage, additional

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living expenses, and attorney’s fees. The Court has also ruled that issues of fact exist regarding

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plaintiffs’ remaining claims for bad faith and violation of the Consumer Protection Act. As the

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Court noted during oral argument, Liberty Mutual also has strong defenses to some of plaintiffs’

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alleged damages, including their claims for emotional distress damages. Liberty Mutual has also

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shown that it has strong defenses to plaintiffs’ claimed damages for additional living expenses

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and damage to the contents of their home. The parties would incur substantial additional costs

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and uncertainty by proceeding to trial. For those reasons, the amount of the settlement is

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reasonable. Moreover, the Court notes that the settlement was reached after lengthy, arms-

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length negotiations before Judge Donohue. There is no evidence of collusion or bad faith. In

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light of those facts, the Court finds the remainder of the settlement reasonable.

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Because the Court has stricken Countrywide’s new claims and dismissed plaintiffs’

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claims against all defendants except Liberty Mutual, it appears that the only remaining claim not

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addressed by the proposed settlement is a claim that MeritPlan might have based on the money it

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paid under its policy. Given that the claim is limited to approximately $15,000, the parties

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should be able to settle it. The parties are instructed to contact the Court if they would like the

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Court’s assistance in further settlement negotiations.
III. CONCLUSION

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For all of the foregoing reasons, the Court DENIES Liberty Mutual’s motion to approve
the settlement and issue a bar order (Dkt. #97).

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DATED this 6th day of June, 2011.

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A
Robert S. Lasnik

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United States District Judge

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ORDER DENYING MOTION - 5