Covenant Judgment Found Reasonable Despite Challenge by Insurer

WASHINGTON – United States Fidelity & Guarantee (USF&G) intervened in a recent mesothelioma matter arguing that a covenant judgment entered at the trial level was unreasonable. By way of background, the plaintiffs, Robert and Karen Ulbricht, and their children sought damages from several defendants, including PM Northwest for Robert Ulbricht’s alleged development of mesothelioma. Ulbricht alleged exposure to asbestos while working at the Texaco Oil Refinery in Anacortes, Washington from 1973-1999. PM was alleged to have been the maintenance contractor at the site. However, PM maintained throughout the suit that it did not manufacture or bring asbestos into the worksite. Prior to suit, PM notified USF&G of the suit but the insurer refused to take action until the policy documents were located and presented by PM. In the meantime, the plaintiff sent a demand to PM in the amount of $3.5 million. After mediation, PM revealed that the insurers had thus far declined to provide defense or indemnity. The plaintiffs increased their demand by $1 million. The parties then explored the idea of a covenant judgment. After counseling, the parties entered into a covenant judgment and stipulated to USF&G’s invention to challenge the reasonableness of the covenant judgment.

The court began its analysis and stated that factors for consideration as to reasonableness included the 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 interest of the parties not being released. USF&G argued that the settlement amount was hypothetical. The court rejected this argument as the standard does not consider previous verdicts but rather the reasonableness under the Chausee mentioned above. Moreover, the record illustrated that both counsel for PM and the plaintiffs had, in fact, reviewed recent verdicts in reaching the covenant judgment. The court also rejected the argument that court erred by considering the risk of continued litigation for the plaintiffs as it deemed contemplating risks and costs of additional litigation. Finally, the court rejected the arguments that the court’s findings were contrary to the evidence in the record. In fact, the court noted that the trial court had utilized the factors in the Chausee standard and therefore the record supported the notion that the covenant judgment was reasonable in the absence of indemnity from the insurer.