SARAH GOSNEY, as assignee and as Personal Representative of the Estate of Jerry Welch; JOHN VOSE, PIZZA TIME INC., and PIZZA TIME HOLDINGS OF WASHINGTON, INC., Respondents/Cross Appellants,
FIREMAN'S FUND INSURANCE COMPANY and THE AMERICAN INSURANCE COMPANY, foreign insurance companies, Appellants/Cross Respondents.
a five-week trial, the jury returned its special verdicts.
After the jury was dismissed, it became apparent that the
parties disagreed as to what exactly the jury had been asked
and what its answers meant. The trial judge, based on his
understanding of what he had asked the jury to decide,
entered a significant judgment in favor of plaintiff Gosney.
However, applying judicial estoppel, the judge declined to
enter judgment on the jury's verdicts in favor of
plaintiffs Vose and Pizza Time.
Fireman's Fund appeals from the judgment entered against
it and in favor of Gosney. Vose and Pizza Time cross-appeal
from the trial court's denial of relief. For good
measure, all parties seek relief from various other trial
reverse the trial court's judicial estoppel rulings. In
all other respects, we affirm the various decisions of the
Vose is the owner and sole shareholder of Pizza Time, Inc.
and Pizza Time Holdings of Washington, Inc. (collectively
PT). Vose owns and operates several corporate PT stores and
also acts as a franchisor with 30 to 35 franchisees. As the
franchisor, Vose personally prepared operational manuals for
his franchises that were then incorporated into the franchise
agreement by reference. These operational manuals purported
to give Vose control over various aspects of franchisee
employment procedures, including the right to terminate
franchisee employees for any reason at any time.
Shaefer owned and operated a PT franchise store prior to and
following Vose's acquisition of the PT franchise.
Unbeknownst to Vose, one of Shaefer's pizza delivery
drivers-Angela Heller-had a poor driving record and a
criminal background. On September 1, 2005, Heller, who had
been drinking on the job, drove her car across the center
line while making a delivery. Heller caused a head-on
collision and killed the driver of the other car, Jerry
Welch. Vose visited Shaefer shortly after receiving word of
the collision. Shaefer told Vose that he had called his
attorneys and that he had insurance.
September 2006, Jerry Welch's widow filed suit against PT
in Thurston County. Sarah Gosney-Welch's daughter-was
later substituted as the personal representative and
plaintiff in the underlying action. Vose's attorney informed him that,
pursuant to the franchise agreement, Shaefer would have to
indemnify and defend PT.
had insurance through Fireman's Fund Insurance Company
(Fireman's) since 2005. PT's insurance policy
required Fireman's to indemnify it for up to $1.5 million
pursuant to a "non-owned auto policy" and an
additional $1 million pursuant to a "general liability
first informed Fireman's of the automobile collision and
ongoing litigation on January 31, 2008. Gosney had extended
an offer to PT and Shaefer to settle for policy limits. Trial
was scheduled for April 21, 2008. Fireman's began
investigating coverage and liability on February 8, 2008. On
February 21, 2008, Gosney's counsel, David Beninger,
wrote to Robert Novasky, counsel for both Vose and Shaefer,
to notify Novasky that Gosney's offer to settle would
remain open for only seven more days. Novasky forwarded this
letter to Paul Badaracco, Fireman's primary claims
handler assigned to the matter, for resolution.
February 22, 2008, Badaracco wrote to Vose to acknowledge
receipt of his claim. Badaracco noted that "[a]lthough
this incident occurred on Sept 1, 2005 and the lawsuit was
filed on Sept 14, 2006, Fireman's Fund's first notice
of this claim and ongoing litigation was ... on Feb. 8, 2008,
some two and a half years after the accident."
wrote to Badaracco again on February 28, 2008. Novasky stated
that "[a]ll other defendants have tendered their policy
limits, but plaintiff is demanding a 'global'
settlement that requires the tender of all available policy
limits." Novasky requested that Fireman's contact
Beninger to confirm Fireman's position with regard to the
appointed counsel John Matthews of Jackson & Wallace, LLP
to defend PT. Matthews contacted Novasky to discuss the case
and review court documents. Matthews then contacted Vose and
received his approval to request a continuance of the trial
date. Trial was rescheduled for December 29, 2008. Gosney
withdrew the global settlement offer as a result of the
March 27, 2008, Badaracco wrote to Vose to inform him that
PT's coverage for nonowned business automobile exposure
covered up to $1.5 million in losses and that the current claim
"could result in damages in excess of ... policy
limits." Badaracco advised Vose to retain counsel to
advise him "with respect to any potential excess
exposure above the referenced limits."
Anderson, an attorney representing Gosney, later contacted
Fireman's to request a copy of the PT insurance policy.
On July 17, 2008, counsel for Fireman's sent Anderson a
copy of the policy and confirmed that Fireman's
"continues to reserve any and all rights and defenses
that may now exist or that may arise in the future."
Anderson then contacted Howard Bundy, corporate counsel for
PT. Anderson told Bundy that Gosney was interested in
reaching a settlement and was willing to discuss a settlement
"involving an agreement or covenant not to execute
against personal assets, in exchange for an assignment of the
claims against the insurance company and a stipulated
who had not represented Vose or PT on any matter related to
the Gosney litigation, advised Vose to retain independent
counsel. Vose then forwarded the settlement offer to attorney
Matthews. Matthews asked Bundy to "please forward these
emails and offers to the counsel that [PT] and/or John Vose
hires to represent him personally on this coverage issue, as
we cannot advise our client on coverage matters." Bundy
then agreed to represent Vose in the Gosney litigation.
and Vose reached a settlement on September 2,
settlement offer required Vose and PT to assign to Gosney
"all rights, privileges, claims, causes or chose of
actions that they may have against their insurer, "
including any arising out of the "handling of the claims
or suit related thereto, as well as arising out of the
insurance contract, obligations, investigation, evaluation,
negotiation, defense, settlement, indemnification ... bad
faith, negligence, malpractice, breach of contract, fiduciary
breach, Consumer Protection Act (CPA)], Insurance Fair Conduct
punitive damages and/or otherwise." The settlement offer
reserved to Vose and PT all elements of damages "for
their personal emotional distress, personal attorneys'
fees, personal damages to credit or reputation and other
non-economic damages" arising from the assigned causes
settlement offer did not specify a dollar amount. Rather, it
Defendants do hereby stipulate and agree to having partial
judgment entered against them for the full insurance limits
to avoid any delay in executing, garnishing or collecting
those offered assets. Plaintiffs agree to withhold formal
entry of this partial judgment for fifteen (15) days to allow
the insurers to pay all insurance proceeds to the Luvera
Trust Account, in trust for the Welchs. Defendants are
entitled to a credit, offset and partial satisfaction of any
judgment for the amounts paid by their insurers.
Further, the parties agree to have the full amount of the
damages and/or judgments determined by stipulation approved
as reasonable by the Court, or arbitration. The parties agree
to use good faith efforts to reach a stipulated covenant
judgment, contingent upon a reasonableness finding by the
court. . . .
settlement offer further provided for a 12 percent interest
rate accruing and compounding annually on the unpaid damages
from the date of signing. Finally, the settlement offer
contained a covenant not to execute or enforce the judgment
against Vose or PT.
and Vose-on behalf of himself and on behalf of PT-signed the
settlement agreement. Bundy then sent a copy of the
settlement agreement to Fireman's along with a letter
demanding the payment of policy limits and notice under the
IFCA. Fireman's never responded to Bundy and never agreed
to the settlement offer.
December 19, 2008, Thurston County superior court Judge Gary
Tabor entered judgment against Vose and PT for $2.5 million
with interest accruing at 12 percent per annum from September
2, 2008. Judge Tabor also issued an order approving the
settlement as reasonable as to Welch's minor children.
Jackson & Wallace filed a notice of intent to withdraw
effective January 29, 2009.
September 1, 2009, Gosney filed suit against Fireman's
and named PT and Vose as codefendants. The complaint alleged
negligence, breach of the CPA, breach of the IFCA, breach of
contract, and breach of the specific unfair claims and
settlement practices regulation. In its answer, Fireman's asserted
the affirmative defenses of waiver and estoppel, contributory
fault, and fraud or collusion in the settlement.
November 1, 2010, Fireman's moved to stay the action
"until Plaintiffs and Defendant [PT] conduct and
conclude their arbitration to determine the final value of
the settlement in their underlying litigation."
Fireman's argued that a stay was necessary because
[Fireman's] cannot effectively defend itself in this
lawsuit without resolution of the underlying settlement
amount, which, if proven reasonable, will form the
"presumptive measure of damages" in this lawsuit.
[PT] claims it cannot provide [Fireman's] written
discovery responses .. . without jeopardizing its position in
the eventual arbitration of the settlement amount. This
leaves [Fireman's] in a litigation quandary, precluding
[Fireman's] ability to prepare for and receive a fair
County Superior Court Judge Laura Inveen granted
Fireman's motion to stay on November 30, 2010. The stay
was granted pending the final determination of damages by
either "stipulated amount approved as reasonable by the
court, " or "final arbitration decision."
and Vose decided to enter arbitration. On September 17, 2012,
Beninger notified John Bennett, outside counsel representing
Fireman's, of the date and time of the arbitration.
Arbitration was scheduled for November 1, 2012 before former
King County Superior Court Judge Charles Burdell.
described the scope of the arbitration as "all remaining
issues." Bennett responded to the notice asking what the
"remaining issues" included. On October 4, 2012,
Bennett again wrote to Beninger asking "what issues the
parties intend to arbitrate." Bennett stated that
"[t]ime is of the essence if Fireman's Fund is to
make an informed decision whether to participate in the
arbitration and to prepare to participate, " and
demanded that Beninger respond by the following day. Beninger
responded simply that "[t]he issues subject to
arbitration are broad."
wrote to Beninger on October 9, 2012, declining to
participate in the arbitration. Bennett explained,
As I am sure you understand, Fireman's Fund cannot
reasonably participate in an arbitration when it does not
know what will be arbitrated. Your response that the issues
to be arbitrated are "broad" does not provide the
information Fireman's Fund needs to be able to
participate in the arbitration.
Also, Fireman's Fund is concerned that defendants have
shared with plaintiff all confidential information relating
to matters at issue in the arbitration, which would preclude
any potential for a fair hearing of the matters in dispute.
Your response ignores that concern.
extended an offer to pay for a transcription of the
arbitration. Beninger replied, "It seems like you are
trying to generate reasons to avoid the arbitration, rather
than participate in good faith. Please keep in mind that you
moved the court and compelled the arbitration of all
remaining issues." Beninger rejected the offer to pay
for transcription of the arbitration. In response, Bennett
asserted that Fireman's had no good faith duty to
participate in the arbitration as Fireman's was not a
defendant and the arbitration was not a reasonableness
the arbitration, Judge Burdell valued Gosney's claim at
$10, 800, 289. Judge Burdell found that PT and Vose were
jointly liable for the damages, that there was no bad faith,
collusion, or fraud between the settling parties, and that
the damages award was a reasonable covenant judgment amount.
Judge Burdell further found that Fireman's had
"notice and opportunity to participate, submit evidence
and be heard." The award caption included Fireman's
as a party.
arbitration proceeding was unusual and is one of the most
contentious subjects in this proceeding. King County Superior
Court Judge Sean O'Donnell summarized some of the
Mr. Vose admitted personal liability (pursuant to the
settlement agreement) when he was not named in the lawsuit
brought by Mr. Welch's estate. Prior to reaching an
amount for damages and prior to the arbitration, Mr. Bundy
... turned over the confidential Jackson Wallace attorney
file to Mr. Benninger [sic] (at Mr. Benninger's [sic]
insistence). Mr. Bundy and Plaintiffs' counsel discussed
the issues to be arbitrated well in advance of the hearing,
and Mr. Bundy even provided Mr. Benninger [sic] with
favorable case law prior to appearing before Judge Burdell.
At the arbitration hearing itself, Mr. Bundy failed to submit
his own trial brief, he failed to call a single witness to
testify, he failed to offer his own exhibits, he failed to
call an expert in franchisor liability, and he agreed that
Ms. Heller (the driver who killed Mr. Welch) was an employee
of Pizza Time (the franchisor) when, in fact, Ms. Heller only
worked for the franchisee. He also was silent to the fact
that Fireman's Fund was listed in the caption of the
arbitration brief (and other pleadings) as a party, when
Fireman's Fund was not. Neither he nor Mr. Benninger
[sic] made any effort to correct this error before Judge
Additionally, Mr. Bundy failed to contest the difference
between the damages award and the reasonableness
finding/amount entered by Judge Burdell. The corollary to
that concession is that Mr. Bundy agreed that Fireman's
was liable for the total damage amount, with no discount
afforded to Mr. Vose/Pizza Time for issues related to
franchisor liability. Finally, the hearing was truncated,
lasting only a matter of hours.
November 16, 2012, Thurston County Superior Court Judge
Thomas McPhee determined that the arbitration award was
reasonable and entered judgment against Vose and PT for $10,
800, 289 (hereinafter "underlying judgment"). The
judgment included pre- and postjudgment interest accruing at
the rate of 12 percent compounded annually from September 2,
2008 until paid.On April 12, 2013, Judge Tabor
granted Fireman's motion to remove its name from the
caption of the arbitration award. Judge Tabor granted the
requested relief but wrote on the order, "Court makes
clear this does not affect the award or goes to any of the
merits or repercussions of the award."
August 23, 2013, Fireman's moved for partial summary
judgment in this action, asserting that "(1) as a matter
of law Fireman's Fund is not bound by the arbitration
award and judgment obtained against [Vose and PT] and that,
therefore; (2) Plaintiffs' claim against Fireman's
Fund for the amount of the arbitration award should be
dismissed." King County Superior Court Judge Timothy
Bradshaw denied the motion.
November 26, 2013, Judge Bradshaw entered an order preventing
Fireman's from deposing Beninger. On January 27, 2014,
Judge Bradshaw entered an order "to preclude attempts to
relitigate the underlying Thurston County wrongful death
action, issues and judgment."
O'Donnell presided over a five-week jury trial in April
and May 2015. At the close of Plaintiffs' case, Fireman's
moved for judgment as a matter of law pursuant to CR 50(a).
Fireman's argued that the covenant judgment was the
result of fraud and collusion, that Fireman's had not
harmed Vose, and that Vose was judicially estopped from
recovering damages because of his failure to disclose his
claim during a prior bankruptcy proceeding. The trial court
denied Fireman's motion but reserved ruling on the issue
of judicial estoppel.
jury was asked to resolve five claims: negligence, breach of
contract, breach of the CPA, breach of the IFCA, and breach
of the duty of good faith. The jury was instructed on
Fireman's affirmative defenses of fraud, collusion,
excuse of performance by estoppel, and excuse of performance
trial, Plaintiffs argued various violations of the duty of
good faith. The jury was instructed that an insurer
"that refuses to defend in good faith voluntarily
forfeits its ability to protect itself against a settlement
in excess of policy limits unless the settlement or
arbitration is the product of fraud or collusion."
Instruction 22. The jury was further instructed:
An insurance company will be bound by the findings,
conclusions and judgment entered against their insured when
it has adequate notice and an opportunity to intervene in the
underlying action. The insurer is bound to what might, or
should, have been litigated as well as to what was actually
litigated. An insurer is not entitled to litigate factual
questions that were resolved in the liability case by
judgment or arm's length settlement.
This instruction applies only in the absence of fraud or
If you find that Fireman's failed to act in good faith by
breaching its duty to defend and/or settle, then the law
presumes that Plaintiffs Pizza Time and Mr. Vose were injured
and that the failure to act in good faith was the proximate
cause of this injury. You are bound by that presumption
unless you find that Fireman's failure to act in good
faith did not injure Plaintiffs Pizza Time and Mr. Vose.
Fireman's bears the burden of proof that any failure to
act in good faith did not injure Plaintiffs Pizza Time and
Plaintiffs bear the burden of proving the amount of damages.
For all other claims that Fireman's failed to act in good
faith, Plaintiffs have the burden of proving each of the
(1) That Fireman's failed to act in good faith;
(2) That Plaintiff Pizza Time or Mr. Vose was damaged; and
(3) That Fireman's failure to act in good faith was a
proximate cause of Plaintiff Pizza Time's or Mr.
If you find from your consideration of all of the evidence
that each of these propositions has not been proved, your
verdict on the claim of failure to act in good faith should
be for Fireman's. On the other hand, if each of these
propositions has been proved, you must consider Fireman's
If your verdict is for the Plaintiffs on their claim that
Fireman's Fund/American Insurance Company failed to act
in good faith, then you must determine the amount of money
that will reasonably and fairly compensate the plaintiffs for
such damages as you find were proximately cause[d] by
Fireman's Fund/American Insurance Company's failure
to act in good faith.
If you find for the Plaintiffs on their claim that
Fireman's Fund/American Insurance Company failed to act
in good faith as to [the] duty to defend or settle, your
verdict must include the amount of the judgment on the
arbitration award, unless you further find for Fireman's
Fund/American Insurance Company on its affirmative defense
that the settlement was the product of fraud or collusion.
The judgment amount is $10, 800, 289, plus interest.
interrogatories on the special verdict form, and the
jury's answers, were as follows:
1a: Plaintiffs' Claims
Have the Plaintiffs proven all elements of any or all of
their claims as to the Defendants? (The elements of these
claims are described in the accompanying Jury Instructions.)
ANSWER: (Check "yes" or "no")
Negligence X___ Yes ___No
Breach of Contract X___ Yes ___No
Breach of the Consumer Protection Act X___ Yes ___No
Breach of the Insurance Fair Conduct Act X___ Yes ___No
Breach of Duty of Good Faith X___ Yes ___No
If you answered "yes" to Question 1a as to Breach
of Duty of Good Faith, did you find a breach of the duty to
defend or settle?
X___ Yes ___No
2: Contributory Negligence
QUESTION 2A: Have the Defendants proven that Plaintiffs were
ANSWER (Check "yes" or "no")
3: Defendants' Defenses
Have the Defendants proven all elements of any or all of
their defenses? Answer each of the subparts below. (The
elements of these claims and defenses are described in the
accompanying Jury Instructions.)
ANSWER: (Check "yes" or "no")
Fraud ___Yes X___No
Collusion ___Yes X___No
Excuse of Performance by Estoppel ___Yes X___No
Excuse of Performance by Waiver X___ Yes ___No
Based on the jury instructions, what amount of damages, if
any, do you find were incurred by Plaintiffs John Vose and
(INSTRUCTION No. 1: Do not duplicate damages across multiple
(INSTRUCTION No. 2: Do not reduce the damages for
Negligence for any contributory negligence you may find in
Question 2. The Court will determine that amount.)
Breach of Contract:
Breach of Duty of Good Faith:
Breach of Consumer Protection Act:
Breach of the Insurance Fair Conduct Act:
If you awarded damages in Question 4a, does the damages
amount include the judgment?
___Yes X No
Of the damages identified in the Verdict Form in Question 4a,
what is the total dollar amount of damages incurred by
Plaintiff John Vose, as opposed to those incurred by Pizza
receipt of the jury's verdict, the trial court discharged
the jury and granted Plaintiffs' motion to prohibit
contact with the jurors. Plaintiffs later filed a
presentation of judgment, asserting that the amount that
should be entered as the principal judgment amount, based on
the jury's verdict, was $11, 260, 289. In response,
Fireman's argued that the jury did not award the amount
of the underlying judgment and that, even assuming that it
did, Fireman's was not bound by that judgment.
trial court agreed with Plaintiffs as to the legal effect of
the jury's verdict and entered judgment in favor of
Plaintiffs. The trial court awarded interest on
the underlying judgment beginning from the date of entry of
the arbitration award. The trial court also concluded that
Fireman's was estopped from contesting the arbitration
award. The trial court found that Fireman's had
sufficient notice of the arbitration hearing, that the
arbitration hearing was "actually litigated, " and
that Fireman's was in privity with Vose and PT at the
time of the arbitration hearing.
then filed a motion for reconsideration. The trial court
reviewed the jury's special verdict and concluded:
The jury here made a factual determination of plaintiffs'
bad faith damages other than and in
addition to the covenant judgment in the amount of $300,
000.00. The jury accordingly found harm as a result of
Fireman's ... failure to act in good faith. But the
plaintiffs' floor on damages had already been determined
by entry of the Thurston County judgment (resulting from the
arbitration/reasonableness hearing).... As a matter of law,
the jury's apparent conflict in the verdict form (finding
harm for the breach of duty of good faith but not writing in
the amount) must be resolved to include the arbitration
trial court then addressed Fireman's judicial estoppel
claim. Pursuant to CR 50(a), Fireman's had moved to bar
Vose from collecting on the jury's damages award based on
Vose's failure to disclose a potential claim against
Fireman's during a prior bankruptcy proceeding. The trial
court agreed with Fireman's and concluded that both Vose
and PT were judicially estopped from recovering damages.
trial court entered judgment in favor of Gosney and against
Fireman's, awarding Gosney the amount of the underlying
judgment and accrued interest totaling $15, 612, 624.34. The
trial court additionally awarded Gosney attorney fees and
costs totaling $2, 484, 542.50 and awarded Vose and PT
attorney fees and costs totaling $405, 612.50. The trial
court's awards of attorney fees and costs included a
lodestar multiplier of 1.25. Fireman's now appeals.
Gosney, Vose, and PT cross-appeal.
insured may independently negotiate a settlement if the
insurer refuses in bad faith to settle a claim. In such a
case, the insurer is liable for the settlement to the extent
the settlement 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)). Such a
settlement agreement typically involves three features:
"(1) a stipulated or consent judgment between the
plaintiff and insured, (2) a plaintiffs covenant not to
execute on that judgment against the insured, and (3) an
assignment to the plaintiff of the insured's coverage and
bad faith claims against the insurer." Bird
v. Best Plumbing Grp., LLC, 175 Wn.2d 756, 764-65,
287 P.3d 551 (2012) (citing Besel, 146 Wn.2d at
736-38). This type of settlement agreement is often referred
to as a covenant judgment. Bird. 175 Wn.2d at 765.
the amount of the covenant judgment is deemed reasonable by a
trial court, it becomes the presumptive measure of damages in
a later bad faith action against the insurer."
Bird, 175 Wn.2d at 765 (citing Besel, 146
Wn.2d at 738). The insured can recover from the insurer
"the amount of a judgment rendered against the insured,
even if the judgment exceeds contractual policy limits."
Miller v. Kenny, 180 Wn.App. 772, 799, 325 P.3d 278
(2014). This is sometimes referred to as the
"'judgment rule.'" Miller, 180
Wn.App. at 799 (quoting Besel, 146 Wn.2d at 735).
"The insurer still must be found liable in the bad faith
action and may rebut the presumptive measure by showing the
settlement was the product of fraud or collusion."
Bird. 175 Wn.2d at 765 (citing Mut. of
Enumclaw Ins. Co. v. T&G Constr., Inc., 165
Wn.2d 255, 264, 199 P.3d 376 (2008)).
propriety of this process has been considered and endorsed by
our Supreme Court.
Whether the insurer acts in bad faith by refusing to settle
in good faith or by refusing to defend, the consequences to
the insured are the same. The defense may be of greater
benefit to the insured than the indemnity. The defense must
be prompt and timely. An insurer refusing to defend exposes
its insured to business failure and bankruptcy. An insurer
faced with claims exceeding its policy limits should not be
permitted to do nothing in the hope that the insured will go
out of business and the claims simply go away. To limit an
insurer's liability to its indemnity limits would only
reward the insurer for failing to act in good faith toward
its insured. We therefore hold that when an insurer