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Safeco Insurance Co. v. Butler2/6/1992
ly flowed from the fact of liability because it can never show its defense of Butler would have resulted in a finding of no liability or in a more favorable settlement than the one Butler reached with Zenker.
That is the second, and most troublesome, aspect of the majority's decision -- it ignores the effect of the Butler/Zenker settlement agreement by measuring Butler's "harm" at the time he settled with and assigned his rights to Zenker. At that time, the majority says, Butler was facing a risk of liability which the settlement agreement does not negate. Majority, at 398; see also Steinmetz v. Hall-Conway-Jackson, Inc., 49 Wash. App. 223, 226-28, 741 P.2d 1054 (1987), review denied, 110 Wash. 2d 1006 (1988). However, unless it can rely on the settlement agreement and covenant not to execute, Safeco has no proof to rebut the presumption of harm to Butler. The effect is an irrebuttable presumption in Butler's favor. Therefore, where there is alleged bad faith by an insurer, followed by a settlement and assignment of the bad faith claim between an insured and an injured party, the issue of harm will always be decided in favor of the insured.
The majority fails to recognize this is a policy decision in favor of insured parties and makes no attempt to explore the ramifications or desirability of that policy. In fact, it will probably result in more trials on the issue of bad faith, because insurers will not be able to point to the existence of
a favorable settlement agreement as a nullification of harm. Furthermore, the majority opinion does not provide insurance companies with any extra incentive to handle claims differently, or better. Allowing Safeco to rely on the Butler/Zenker settlement to show there was no harm to Butler will not motivate Safeco (or any insurance company) to mishandle claims or act in bad faith in the future. An insurer would still face a bad faith claim if its mishandling of a claim resulted in a failure to settle or in an unfavorable settlement. Where, as in this case, there is an allegation of bad faith but a favorable settlement, e.g., a covenant not to execute against an insured, then there is no harm to be prevented.
Even if Butler could prove Safeco's conduct prejudiced him in some way, or exposed him to a risk of liability, the settlement agreement effectively nullified that prejudice and obviated that risk. As a result of the settlement, Butler was completely released from civil liability for the Zenker shooting; Zenker agreed not to enforce any judgment against Butler and to seek relief only from Safeco. I fail to see, in light of such a covenant not to execute, how Butler has been harmed. Because I see no genuine issue of material fact with regard to whether Safeco's alleged bad faith acts harmed Butler, I would find the Butler/Zenker settlement agreement, as a matter of law, can be used to show the absence of harm to Butler. A bad faith claim to be pursued against Safeco at this point is, I think, punitive in nature and should not be allowed. See Barr v. Interbay Citizens Bank, 96 Wash. 2d 692, 699-700, 635 P.2d 441, 649 P.2d 827 (1981).
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