Liberty Mutual Insurance Co. v. Tripp

Summary

The Washington Supreme Court considers whether insureds breached a policy provision requiring prompt notice of a tentative settlement with an alleged tortfeasor before seeking underinsured motorist benefits. The court holds that the notice provision is valid, but that failure to provide notice bars or reduces UIM coverage only to the extent the insurer proves actual prejudice. The court remands for determination of damages and prejudice, reverses the ruling requiring reimbursement of medical benefits, and reverses the attorney-fee award.

Holdings

1. A UIM policy may validly require the insured to promptly notify the insurer of a tentative settlement with the tortfeasor and allow the insurer a reasonable time to advance payment equal to the settlement amount.
2. The Tripps failed to provide the notice required by their policy because they did not notify Liberty Mutual of the tentative settlement before accepting payment and executing the release.
3. Failure to notify the UIM insurer of a tentative settlement does not automatically eliminate UIM coverage. The insurer may reduce or avoid its UIM obligation only to the extent it proves actual prejudice caused by the lack of notice.
4. A PIP insurer cannot require reimbursement from its insured until the insured has been fully compensated for the loss.
5. The Tripps were not entitled to attorney fees because their failure to comply with an express policy term precipitated the declaratory action, regardless of whether Liberty Mutual ultimately proved prejudice.
6. The Tripps' bad-faith claim failed because they presented no material issue of fact showing that Liberty Mutual's conduct was unreasonable, frivolous, or untenable.

Questions Presented

1. Whether Washington common law independently required the Tripps to notify Liberty Mutual of their tentative settlement with the tortfeasor.
2. Whether the UIM policy's requirement that the insured promptly notify Liberty Mutual of a tentative settlement was valid and enforceable.
3. Whether the Tripps' failure to provide notice automatically waived or destroyed their UIM claim, or instead affected coverage only to the extent Liberty Mutual could prove actual prejudice.
4. Whether Liberty Mutual was entitled to reimbursement of PIP benefits before determining whether the Tripps had been fully compensated.
5. Whether the Tripps were entitled to attorney fees under the Olympic Steamship rule.
6. Whether the Tripps presented a material issue of fact supporting their bad-faith counterclaim.

Disposition

reversed_and_remanded