Sundquist Homes ripoff multiple construction defects won't pay homeowner left with bill Lynnwood Washington

The purpose of this posting is to supplement my positing of September 26, 2007.
Within the last few months the Red Oaks Homeowners' Association settled with Sundquist Homes' insurance carrier for an undisclosed sum. Thus, the Red Oaks Homeowners' Association has now been paid substantial funds from both the insurance carriers of the subcontractors and Sundquist Homes' insurance carrier Mutual of Enumclaw.
The fact that the Association has collected from both the subcontractor's carriers and from Sundquist Homes' carrier is evidence that the claims assigned to the Association from Sundquist Homes were of value and that Sundquist Homes has fulfilled its obligations in this case.
A. Jeff Leghorn,
General Counsel, Sundquist Family of Companies

The purpose of this response is to correct certain misstatements in the original posting and to provide further information on the issue.

As the letter from Mutual of Enumclaw included in the original posting points out, a lawsuit was filed against Sundquist Homes, Inc. ('Sundquist') by the Red Oaks Condominium Homeowners' Association (the 'Association'). Unfortunately, this is not uncommon these days. In fact, most condominiums built in Washington State in the last few years have been involved in these condo lawsuits. This is also the situation in many other states. The reasons for this extreme trend in litigation resulting in the current crisis are varied and complex and have been gone into in depth in many online articles, thus I will not do so here.

The posting states that a 1.9 million dollar judgment was handed down against Sundquist and that Sundquist only paid $100,000, which of course gives the impression that Sundquist did not fulfill its obligations. This is simply not true. Sundquist and the Association agreed to the 1.9 million dollar judgment following Sundquist's insurance carrier's (Mutual of Enumclaw ('MOE')) decision to deny coverage. There was no trial or reasoned holding form the judge in this case the Association and Sundquist simply agreed to such and the court affirmed.

During the mediation of this case, the Association decided to accept an assignment of Sundquist's rights against MOE including, Sundquist's bad faith claims against MOE, if the Association would release Sundquist. Sundquist also agreed to pay $100,000 to the Association. Which meant that the Association could continue to sue MOE for the claimed construction damages and as well for bad faith in relation to MOE's handling of the claim. Thus, the Association could potentially get an award for the claimed construction defect damages and as well an award related to the bad faith claim against MOE. The Association decided to take this risk in hopes that they could get both awards. The Association was represented by two experienced lawyers that undoubtedly informed the Association of the potential benefits and risks of this decision.

The posting also does not mention the fact that the Association was able to recover money from the subcontractors that actually performed the work, although, I do not know how much.

The posting also comments upon a political campaign donation made by Mr. Sundquist. Of course, any political campaign donation Mr. Sundquist makes is absolutely irrelevant to this case.

As can be seen from the facts of the case as discussed above, Sundquist acted in good faith and has met all its obligations related to this case.

I realize these issues are complex and difficult but, I hope this response makes this issue somewhat more understandable.

A. Jeff Leghorn,
General Counsel, Sundquist Homes, LLC

Thursday, September 21, 2006 - Page updated at 12:00 AM

Election 2006
Alexander prevails in bitter court race

By Ralph Thomas

Seattle Times Olympia bureau

ALAN BERNER / THE SEATTLE TIMES

Mark Griswold, wearing hat, a friend and supporter of Supreme Court candidate John Groen, monitors election results Tuesday on the Internet. Groen on Wednesday conceded the race to Chief Justice Gerry Alexander.

SCOTT COHEN / THE SEATTLE TIMES

Chief Justice Gerry Alexander, with his wife, Christine, left, watches election results come in Tuesday night in Olympia.

Fresh from battle, interest groups on both sides of a bitter struggle for control of the state Supreme Court are arming themselves for another expensive showdown.

Property-rights attorney John Groen on Wednesday conceded defeat to Chief Justice Gerry Alexander in what was the costliest court race in state history. Groen congratulated Alexander in a written statement, a gesture that belied the bitter tone set during the campaign by the groups that were backing both candidates.

All of the attention and money now turns to the likely runoff in November between Justice Susan Owens and Republican state Sen. Steve Johnson of Kent. Owens leads Johnson in a five-way race but probably will not get the 50 percent she would need to advance unopposed to the general election.

Though some observers say campaign attacks in the Groen-Alexander race may have backfired, people on both sides of the Owens-Johnson contest are expecting a similar sort of slugfest.

In another court race that drew far less attention, Justice Tom Chambers was elected to a second term Tuesday, winning by a wide margin over Jeanette Burrage, a former King County Superior Court judge.

Court races, which in the past were low-budget, low-impact affairs, have grown more contentious in recent years.

In the final weeks of the Groen-Alexander race, voters were hit with an unprecedented onslaught of attack ads and mailers. Most of it came from interest groups that have pumped more than $2.2 million into this year's court races.

In terms of spending on television ads, the Groen-Alexander race was second-costliest in the nation so far this year, according to two groups that have been tracking state-court races.

Groen's supporters ? especially the powerful Building Industry Association of Washington (BIAW) ? painted 70-year-old Alexander as too old for the job, raised questions about his character and warned voters that he was out to steal their private-property rights.

In response, a new political-action committee funded by labor unions, trial lawyers and other liberal groups portrayed Groen as a toady of "far-right" extremists who are bent on taking over the court. One mailer included a cartoon depicting Groen as a shifty brute.

Sue Evans, spokeswoman for the anti-Groen group, said she wasn't surprised at the attacks against Alexander.

"The national trends say that kind of stuff works," Evans said.

But she said the tone and late timing of some of the attacks may have backfired on Groen and his supporters. She said she thinks voters were especially irked at a BIAW-funded ad that criticized Alexander for expressing support for fellow Justice Bobbe Bridge after she was arrested in 2003 for drunken driving.

Alex Hays, a political consultant, called the building-industry attacks against Alexander an "utter failure."

Hays was campaign manager for Jim Johnson, another conservative property-rights advocate, who was elected to the court on his second try in 2004. He said Johnson ? who also had big backing from the building industry ? focused mostly on touting his own record, rather than bashing his opponents'.

"I believe if they had spent their money saying nice things about John Groen, he would have been in a better position," Hays said.

Hays said negative campaigns are not just bad for the candidates, they are bad for the judicial system.

"Because no matter who won that election, someone was going to arrive tainted by the smear campaign," Hays said.

But BIAW Executive Vice President Tom McCabe defends his group's strategy and describes the attacks against Alexander as fair and truthful.

And he said he thinks Groen did well, especially given that Alexander was widely supported by the state's political establishment ? including most newspapers ? and has been a judge for more than three decades.

"That guy's been on the ballot forever," McCabe said.

Groen was bucking history. During the past 60 years, only two incumbent justices who had been elected to their seats, rather than appointed, have been defeated by challengers.

McCabe said the BIAW plans to keep playing rough in court races. The building industry has already spent hundreds of thousands of dollars to help Steve Johnson in his race against Owens.

And McCabe said his group will be ready to go to war again for Groen if he decides to run in 2008 ? a prospect Groen would not rule out.

"It's not a sprint, it's a marathon," McCabe said.

Ralph Thomas: 360-943-9882 or rthomas@seattletimes.com

Copyright ? 2006 The Seattle Times Company

The $25,000 donated by Sundquist for this political campaign could have paid his cutomers special assessment for faulty construction and be better spent.

No funds from Sundquist Homes insurance company, for faulty workmanship/construction defects. Plenty of money available for campaign donations for election of Washington State Supreme Court judge. $25,000 could have paid for just one homeowner's special assessment.


http://seattletimes.nwsource.com/html/localnews/2003059991_supremecourt14m.html

Court of Appeals Division I
State of Washington

Opinion Information Sheet

Docket Number: 54398-9-I
Title of Case: Red Oaks Condominium, Respondent v. Mutual
of Enumclaw, Appellant
File Date: 05/31/2005


SOURCE OF APPEAL
----------------
Appeal from Superior Court of Snohomish County
Docket No: 04-2-08703-0
Judgment or order under review
Date filed: 05/13/2004
Judge signing: Hon. Larry E McKeeman


JUDGES
------
Authored by William Baker
Concurring: Ronald Cox
Susan Agid


COUNSEL OF RECORD
-----------------
Counsel for Appellant(s)
David R Collins
Hackett Beecher & Hart
1601 5th Ave Ste 2200
Seattle, WA 98101-1651

Counsel for Respondent(s)
Charles Kenworthey Harer
Condominium Law Group PLLC
10310 Aurora Ave N
Seattle, WA 98133-9228

Heather L McCormick
Condominium Law Group PLLC
10310 Aurora Ave N
Seattle, WA 98133-9228

Gregory Turek Bartholomew
Bullivant Houser Bailey PC
1601 5th Ave Ste 2300
Seattle, WA 98101-1618

Jeffrey Guy Frank
Bullivant Houser Bailey PC
1601 5th Ave Ste 2300
Seattle, WA 98101-1618

Amicus Curiae on behalf of Ryan Swanson & Cleveland PLLC

RED OAKS CONDOMINIUM OWNERS )
ASSOCIATION, a Washington nonprofit )
corporation, )
)
Respondent, ) DIVISION ONE
)
vs. ) No. 54398-9-I
)
SUNDQUIST HOLDINGS, INC., f/k/a/ )
SUNDQUIST HOMES, INC., a Washington )
corporation, LARRY J. SUNDQUIST and )
DIANE Y. SUNDQUIST, a marital )
community, )
) ORDER GRANTING
Respondents, ) MOTION TO PUBLISH
) OPINION
and )
)
CLIFFORD A. SUNDQUIST and LAURA )
SUNDQUIST, a marital community, )
)
Defendants, )
)
vs. )
)
MUTUAL OF ENUMCLAW INSURANCE )
COMPANY, )
)
Appellant. )
)

The respondent, Red Oaks Condominium Owners Association, having filed
a motion to publish opinion, and the hearing panel having reconsidered its
prior determination and finding that the opinion will be of precedential
value; now, therefore it is hereby:
ORDERED that the unpublished opinion filed May 31, 2005, shall be
published and printed in the Washington Appellate Reports.
Done this day of July, 2005.
FOR THE COURT:

Judge

IN THE COURT OF APPEALS FOR THE STATE OF WASHINGTON

RED OAKS CONDOMINIUM OWNERS )
ASSOCIATION, a Washington nonprofit )
corporation, )
)
Respondent, ) DIVISION ONE
)
vs. ) No. 54398-9-I
)
SUNDQUIST HOLDINGS, INC., f/k/a/ )
SUNDQUIST HOMES, INC., a Washington )
corporation, LARRY J. SUNDQUIST and )
DIANE Y. SUNDQUIST, a marital )
community, )
) ORDER DENYING
Respondents, ) APPELLANT'S MOTION
) FOR RECONSIDERATION
and )
)
CLIFFORD A. SUNDQUIST and LAURA )
SUNDQUIST, a marital community, )
)
Defendants, )
)
vs. )
)
MUTUAL OF ENUMCLAW INSURANCE ) COMPANY, )
)
Appellant. )
)

The appellant, Mutual of Enumclaw Insurance Company, having filed a
motion for reconsideration herein, and a majority of the panel having
determined that the motion should be denied; now, therefore, it is hereby
ORDERED that the motion for reconsideration be, and the same is,
hereby denied.
Dated this day of July, 2005.
FOR THE COURT:

Judge

IN THE COURT OF APPEALS FOR THE STATE OF WASHINGTON

RED OAKS CONDOMINIUM OWNERS )
ASSOCIATION, a Washington nonprofit )
corporation, )
)
Respondent, ) DIVISION ONE
)
vs. ) No. 54398-9-I
)
SUNDQUIST HOLDINGS, INC., f/k/a/ )
SUNDQUIST HOMES, INC., a Washington )
corporation, LARRY J. SUNDQUIST and )
DIANE Y. SUNDQUIST, a marital )
community, )
) UNPUBLISHED OPINION
Respondents, )
)
and )
)
CLIFFORD A. SUNDQUIST and LAURA )
SUNDQUIST, a marital community, )
)
Defendants, )
)
vs. )
)
MUTUAL OF ENUMCLAW INSURANCE ) FILED: May 31, 2005
COMPANY, )
)
Appellant. )
)

BAKER, J. Red Oaks Condominium Owners Association (Red Oaks) sued its
developer, Sundquist Holdings, Inc. (Sundquist), for damages stemming from construction defects after Sundquist's insurer, Mutual of Enumclaw (MOE), refused to settle its claims. Sundquist and Red Oaks entered into a settlement agreement which was contingent on a judicial determination that it was reasonable. MOE moved to intervene in the reasonableness hearing and for a continuance. The parties stipulated to MOE's intervention, but the court denied MOE's motion for a continuance and its subsequent motion
for reconsideration. MOE appeals the court's order denying its motion to reconsider and the judgment. We affirm, and hold that MOE was provided sufficient notice, consistent with due process, because it was afforded a reasonable amount of time to conduct discovery and to identify any conflicts of interest that might have arisen from its participation in the
hearing.
I.
Red Oaks notified Sundquist of construction defects sometime in the Spring of 2002. In April of 2003, Sundquist notified MOE of Red Oaks's claims and MOE defended Sundquist under a reservation of rights. The parties entered
two consecutive agreements to toll the running of the statute of limitations as they tried to reach a settlement. MOE consented to the
tolling agreements and participated in and paid for an investigation into Red Oaks's claims.
On March 3, 2004, MOE filed a declaratory judgment action against Sundquist disputing coverage of Red Oaks's claims.1 The following day, Sundquist and Red Oaks began mediation and agreed on an amount of damages, but MOE
refused to pay, so the parties did not reach settlement. Red Oaks filed suit against Sundquist on March 31. Two days later, Red Oaks and Sundquist entered into a settlement agreement whereby Sundquist stipulated to a
settlement amount of $1,948,000 and assigned its rights against MOE to Red Oaks in exchange for a covenant not to execute and dismissal of the claims against the individual defendants in the lawsuit. The agreement was contingent on a court finding the settlement reasonable.
Red Oaks requested a hearing to determine whether the settlement agreement was reasonable, and delivered a copy of the motion to MOE six business days before the hearing. MOE did not receive a copy of the settlement agreement
until three days before the hearing. MOE moved to intervene and requested a continuance in order to prepare and conduct discovery.
The parties stipulated that MOE could intervene in the reasonableness hearing, but the superior court denied MOE's motion for a continuance.
Although given the opportunity, MOE did not participate in the hearing.

The court found that the settlement agreement was reasonable, and entered judgment consistent with the agreement. MOE appeals the order denying reconsideration of its motion for continuance and the judgment.2
II.
MOE argues that the trial court denied it due process by refusing it time to prepare for the reasonableness hearing. MOE maintains that it needed time for discovery and to determine whether Sundquist would be prejudiced by MOE's participation in the hearing. It claims that six days' notice, with just three days to review the settlement agreement, was so inadequate
as to deprive it of constitutional due process of law. Moe appeals from an order on reconsideration of its motion for a continuance. Normally, orders on motions for continuance are reviewed for an abuse of discretion.3 However, MOE claims a violation of its right to constitutional due process, and whether notice complies with due process is
a question of law, and therefore reviewed de novo.4 Under either standard of review, we conclude that MOE was afforded sufficient notice and time to prepare.

When an insurer refuses to settle a claim, the insured and the claimant may negotiate a settlement on their own.5 The insurer may be liable for the settlement amount to the extent that it is reasonable.6 When a settlement
agreement includes a covenant not to execute, concerns arise as to whether the settlement amount is reasonable. The insured may be persuaded to settle for an inflated amount in exchange for immunity from personal
liability.

In Chaussee v. Maryland Casualty Company,7 we held that a trial court can reliably determine the reasonableness of a settlement in the context of a covenant judgment by using the factors applied in Glover v. Tacoma General
Hospital.8 Our Supreme Court has held that 'the Chaussee criteria protect insurers from excess judgments especially where . . . the insurer has
notice of the reasonableness hearing and has an opportunity to argue against the settlement's reasonableness.'9 Thus, it is common for parties
to move for a hearing to determine the reasonableness of settlement agreements.10
MOE claims that it did not participate in the reasonableness hearing because it was unsure whether it would be putting its interests ahead of the interests of Sundquist, and potentially exposing itself to liability.

Under a reservation of rights, an insurance company must defend its insured against all claims. In Tank v. State Farm Fire and Casualty Company,11 our Supreme Court explained that this obligation requires a heightened duty of
good faith by the insurer:
{T}he potential conflicts of interest between insurer and insured inherent in {a reservation of rights} defense mandate an even higher standard: an insurance company must fulfill an enhanced obligation to its insured as part of its duty of good faith. Failure to satisfy this enhanced obligation may result in liability of the company . . . .{12}

The court elaborated: '{A}n insurance company must refrain from engaging in any action which would demonstrate a greater concern for the insurer's monetary interest than for the insured's financial risk.'13 If an insurer
puts its interests in limiting coverage above the insured's interests in settling a lawsuit, it may breach its duty of good faith and expose itself to liability.

MOE claims that, under the settlement agreement, it was unclear whether the covenant not to pursue the insured's assets was dependent upon
judicial approval of the full settlement amount. The settlement agreement states that '{w}ith the approval by the court of the Stipulated Judgment described in Paragraph 2 of this Agreement, Red Oaks agrees to stipulate to
a dismissal with prejudice of all claims asserted in the lawsuit against Larry and Diane Sundquist.' Paragraph 2 indicates a settlement amount of $1,948,000. MOE argues that it did not have enough time to interpret this
clause and resolve potential conflicts because it did not obtain a copy of the settlement agreement until three days before the hearing. MOE was concerned that, if the covenant not to execute and to dismiss claims was contingent on the full settlement amount and MOE had participated in the hearing and convinced the court that the settlement amount was
unreasonable, it would breach its duty of good faith to Sundquist.
To be consistent with due process, notice 'must afford a reasonable time for those interested to make their appearance.'14 Reasonableness is
measured by the particular circumstances.15 MOE has not explained how having more time to interpret the settlement agreement would have remedied its concerns regarding a potential conflict of interest. It was aware of
the duties it owed Sundquist and the conflicts of interest involved when it defends under a reservation of rights long before the parties reached settlement. Three days was enough time to interpret the clause and decide whether to proceed as an intervener in the reasonableness hearing. And to the extent that this appeal seeks to challenge the practice of holding a
reasonableness hearing prior to coverage determination, our Supreme Court 'has already held that a reasonableness hearing in this situation is appropriate.'16
Furthermore, we do not foresee a circumstance in which an insurer would be subject to a bad faith action due to its participation in a reasonableness hearing. When an insurer is granted the opportunity to defend its interest
in such a hearing, and does so in good faith, it will not be risking greater liability. After all, the court is ultimately determining whether
the settlement is reasonable.

MOE also argues that a lack of adequate notice resulted in insufficient discovery. MOE divided its Red Oaks files between defense and coverage
issues. By separating its coverage and defense functions, MOE attempted to avoid conflicts of interest. The defense files were kept by Sundquist's appointed defense attorney, who had the duty to keep any information that might jeopardize Sundquist's coverage confidential.

MOE argues that because it divided functions, its coverage files may not have included enough information to assess the reasonableness of the
settlement. It claims that Sundquist's defense attorney might have been obligated to withhold damage and scope of repair reports that contained
details from which the insurance company could deny coverage. MOE maintains that it therefore needed more time for discovery in order to
adequately prepare for the reasonableness hearing.

In Howard v. Royal Specialty Underwriting, Inc.,17 we were presented with a similar argument. In Howard, a contractor entered into a settlement agreement with an employee and assigned its rights against its insurer.
The insurer sought a reversal of the superior court's determination that the settlement was reasonable.18 In addition to contesting the
reasonableness of the settlement, the insurer argued that the trial court erred in denying its motion for a continuance in order to conduct
discovery.19 We explained why the trial court did not abuse its discretion in denying the insurance company more time:
Royal received notice of the reasonableness hearing 30 days before the hearing. Royal was not a complete 'stranger to the case.' Royal provided , and Cascade had the opportunity to
participate in discovery. Royal had access to all of Howard's medical records and copies of the correspondence between the settling parties. At the reasonableness hearing, Royal was allowed to cross-examine Howard's
treating physician and was able to present substantial evidence. Under these circumstances, the trial court did not abuse its discretion in
refusing to reopen discovery and continue the hearing.{20}

Similarly, MOE was not a stranger to this case. It was notified of the claims against Sundquist almost a year in advance of the hearing, defended
Sundquist under a reservation of rights, agreed to the tolling of the statute of limitations, paid for an investigation into the claims, and was aware of ongoing settlement negotiations. It should have been no surprise to MOE that the parties settled quickly once a lawsuit was initiated.

Further, the trial court permitted MOE to participate in the reasonableness hearing, but it chose not to. In contrast to Howard, MOE was only given six days' notice and three days
to review the settlement agreement. But the notice indicated the settlement amount, so MOE was provided six days to determine whether the
amount was reasonable. And, as the superior court noted, whether the settlement agreement was contingent was not relevant to whether the amount was reasonable under the Chaussee factors. Given the circumstances surrounding this dispute, six days' notice was consistent with due process because it was a reasonable amount of time for MOE to make an appearance
and defend its interests at the hearing.21
AFFIRMED.

WE CONCUR:

1 Red Oaks also filed suit against MOE to obtain payment for the judgment entered in this case.
2 Red Oaks argues that we should not review the trial court's order denying MOE's motion for time to prepare because it did not designate the order in its appeal. But, under RAP 2.4(c), we can review a final judgment not designated if the notice of appeal designates an order stemming from a motion to reconsider that judgment.

3 Public Utility Dist. No. 1 of Klickitat County v. Int'l Ins. Co., 124
Wn.2d 789, 813, 881 P.2d 1020 (1994).

4 Public Utility Dist. No. 2 of Grant County v. N. Am. Foreign Trade Zone Indus., LLC, 125 Wn. App. 622, 629, 105 P.3d 441 (2005).

5 Chaussee v. Maryland Cas. Co., 60 Wn. App. 504, 509-10, 803 P.2d 1339, 812 P.2d 487 (1991).

6 Chaussee, 60 Wn. App. at 510.
7 60 Wn. App. 504, 509, 803 P.2d 1339, 812 P.2d 487 (1991).

8 Chaussee, 60 Wn. App. at 512 (applying the factors in Glover v. Tacoma Gen. Hosp., 98 Wn.2d 708, 658 P.2d 1230 (1983), overruled on other grounds, Crown Controls, Inc. v. Smiley, 110 Wn.2d 695, 756 P.2d 717 (1988)). See
also Besel v. Viking Ins. Co., 146 Wn.2d 730, 738-39, 49 P.3d 887 (2002) (applying the Chaussee-Glover factors). In Glover, the court adopted the reasonableness factors in the context of RCW 4.22.040, which governs the
availability of contribution to a tortfeasor who enters into a settlement with a claimant. Glover, 98 Wn.2d at 716-18. The factors include: the damages involved; the merits of the plaintiff's liability theory; the merits of the defense's theory; the defendant's relative faults; the risks and expenses of continued litigation; the defendant's ability to pay; any
evidence of bad faith, collusion, or fraud; the extent of the investigation and preparation of the case; and the interests of the parties not being released from liability. Glover, 98 Wn.2d at 717. 9 Besel, 146 Wn.2d at 739.
10 See, e.g., Besel, 146 Wn.2d at 734 (holding that the amount of a covenant judgment is the presumptive measure of an insured's harm if the settlement agreement is reasonable under the Chaussee factors); Werlinger v. Warner,

Wn. App. , 109 P.3d 22 (2005); Howard v. Royal Spec. Underwriting, Inc., 121 Wn. App. 372, 379, 89 P.3d 265 (2004). 11 105 Wn.2d 381, 387, 715 P.2d 1133 (1986).
12 Tank, 105 Wn.2d at 387.
13 Tank, 105 Wn.2d at 388.
14 Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 314, 70 S. Ct.
652 (1950) (citing Roller v. Holly, 176 U.S. 398, 20 S. Ct. 410 (1900);
Goodrich v. Ferris, 214 U.S. 71, 29 S. Ct. 580 (1909)).
15 Mullane, 339 U.S. at 315.
16 Howard, 121 Wn. App. at 379.
17 121 Wn. App. 372, 89 P.3d 265 (2004).
18 Howard, 121 Wn. App. at 375.
19 Howard, 121 Wn. App. at 379.
20 Howard, 121 Wn. App. at 379.
21 Six days is also proper notice under the local court rules. Snohomish
County Local Court Rule 7(b)(2)(B) states: 'Any party desiring to bring any
civil motion prior to trial, other than a motion for summary judgment, must
file such motion documents with the clerk and serve all parties, and the
court at least six (6) court days before the date fixed for such hearing.'

Court of Appeals Division I
State of Washington

Opinion Information Sheet

Docket Number: 54398-9-I
Title of Case: Red Oaks Condominium, Respondent v. Mutual
of Enumclaw, Appellant
File Date: 05/31/2005


SOURCE OF APPEAL
----------------
Appeal from Superior Court of Snohomish County
Docket No: 04-2-08703-0
Judgment or order under review
Date filed: 05/13/2004
Judge signing: Hon. Larry E McKeeman


JUDGES
------
Authored by William Baker
Concurring: Ronald Cox
Susan Agid


COUNSEL OF RECORD
-----------------
Counsel for Appellant(s)
David R Collins
Hackett Beecher & Hart
1601 5th Ave Ste 2200
Seattle, WA 98101-1651

Counsel for Respondent(s)
Charles Kenworthey Harer
Condominium Law Group PLLC
10310 Aurora Ave N
Seattle, WA 98133-9228

Heather L McCormick
Condominium Law Group PLLC
10310 Aurora Ave N
Seattle, WA 98133-9228

Gregory Turek Bartholomew
Bullivant Houser Bailey PC
1601 5th Ave Ste 2300
Seattle, WA 98101-1618

Jeffrey Guy Frank
Bullivant Houser Bailey PC
1601 5th Ave Ste 2300
Seattle, WA 98101-1618

Amicus Curiae on behalf of Ryan Swanson & Cleveland PLLC

RED OAKS CONDOMINIUM OWNERS )
ASSOCIATION, a Washington nonprofit )
corporation, )
)
Respondent, ) DIVISION ONE
)
vs. ) No. 54398-9-I
)
SUNDQUIST HOLDINGS, INC., f/k/a/ )
SUNDQUIST HOMES, INC., a Washington )
corporation, LARRY J. SUNDQUIST and )
DIANE Y. SUNDQUIST, a marital )
community, )
) ORDER GRANTING
Respondents, ) MOTION TO PUBLISH
) OPINION
and )
)
CLIFFORD A. SUNDQUIST and LAURA )
SUNDQUIST, a marital community, )
)
Defendants, )
)
vs. )
)
MUTUAL OF ENUMCLAW INSURANCE )
COMPANY, )
)
Appellant. )
)

The respondent, Red Oaks Condominium Owners Association, having filed
a motion to publish opinion, and the hearing panel having reconsidered its
prior determination and finding that the opinion will be of precedential
value; now, therefore it is hereby:
ORDERED that the unpublished opinion filed May 31, 2005, shall be
published and printed in the Washington Appellate Reports.
Done this day of July, 2005.
FOR THE COURT:

Judge

IN THE COURT OF APPEALS FOR THE STATE OF WASHINGTON

RED OAKS CONDOMINIUM OWNERS )
ASSOCIATION, a Washington nonprofit )
corporation, )
)
Respondent, ) DIVISION ONE
)
vs. ) No. 54398-9-I
)
SUNDQUIST HOLDINGS, INC., f/k/a/ )
SUNDQUIST HOMES, INC., a Washington )
corporation, LARRY J. SUNDQUIST and )
DIANE Y. SUNDQUIST, a marital )
community, )
) ORDER DENYING
Respondents, ) APPELLANT'S MOTION
) FOR RECONSIDERATION
and )
)
CLIFFORD A. SUNDQUIST and LAURA )
SUNDQUIST, a marital community, )
)
Defendants, )
)
vs. )
)
MUTUAL OF ENUMCLAW INSURANCE ) COMPANY, )
)
Appellant. )
)

The appellant, Mutual of Enumclaw Insurance Company, having filed a
motion for reconsideration herein, and a majority of the panel having
determined that the motion should be denied; now, therefore, it is hereby
ORDERED that the motion for reconsideration be, and the same is,
hereby denied.
Dated this day of July, 2005.
FOR THE COURT:

Judge

IN THE COURT OF APPEALS FOR THE STATE OF WASHINGTON

RED OAKS CONDOMINIUM OWNERS )
ASSOCIATION, a Washington nonprofit )
corporation, )
)
Respondent, ) DIVISION ONE
)
vs. ) No. 54398-9-I
)
SUNDQUIST HOLDINGS, INC., f/k/a/ )
SUNDQUIST HOMES, INC., a Washington )
corporation, LARRY J. SUNDQUIST and )
DIANE Y. SUNDQUIST, a marital )
community, )
) UNPUBLISHED OPINION
Respondents, )
)
and )
)
CLIFFORD A. SUNDQUIST and LAURA )
SUNDQUIST, a marital community, )
)
Defendants, )
)
vs. )
)
MUTUAL OF ENUMCLAW INSURANCE ) FILED: May 31, 2005
COMPANY, )
)
Appellant. )
)

BAKER, J. Red Oaks Condominium Owners Association (Red Oaks) sued its
developer, Sundquist Holdings, Inc. (Sundquist), for damages stemming from construction defects after Sundquist's insurer, Mutual of Enumclaw (MOE), refused to settle its claims. Sundquist and Red Oaks entered into a settlement agreement which was contingent on a judicial determination that it was reasonable. MOE moved to intervene in the reasonableness hearing and for a continuance. The parties stipulated to MOE's intervention, but the court denied MOE's motion for a continuance and its subsequent motion
for reconsideration. MOE appeals the court's order denying its motion to reconsider and the judgment. We affirm, and hold that MOE was provided sufficient notice, consistent with due process, because it was afforded a reasonable amount of time to conduct discovery and to identify any conflicts of interest that might have arisen from its participation in the
hearing.
I.
Red Oaks notified Sundquist of construction defects sometime in the Spring of 2002. In April of 2003, Sundquist notified MOE of Red Oaks's claims and MOE defended Sundquist under a reservation of rights. The parties entered
two consecutive agreements to toll the running of the statute of limitations as they tried to reach a settlement. MOE consented to the
tolling agreements and participated in and paid for an investigation into Red Oaks's claims.
On March 3, 2004, MOE filed a declaratory judgment action against Sundquist disputing coverage of Red Oaks's claims.1 The following day, Sundquist and Red Oaks began mediation and agreed on an amount of damages, but MOE
refused to pay, so the parties did not reach settlement. Red Oaks filed suit against Sundquist on March 31. Two days later, Red Oaks and Sundquist entered into a settlement agreement whereby Sundquist stipulated to a
settlement amount of $1,948,000 and assigned its rights against MOE to Red Oaks in exchange for a covenant not to execute and dismissal of the claims against the individual defendants in the lawsuit. The agreement was contingent on a court finding the settlement reasonable.
Red Oaks requested a hearing to determine whether the settlement agreement was reasonable, and delivered a copy of the motion to MOE six business days before the hearing. MOE did not receive a copy of the settlement agreement
until three days before the hearing. MOE moved to intervene and requested a continuance in order to prepare and conduct discovery.
The parties stipulated that MOE could intervene in the reasonableness hearing, but the superior court denied MOE's motion for a continuance.
Although given the opportunity, MOE did not participate in the hearing.

The court found that the settlement agreement was reasonable, and entered judgment consistent with the agreement. MOE appeals the order denying reconsideration of its motion for continuance and the judgment.2
II.
MOE argues that the trial court denied it due process by refusing it time to prepare for the reasonableness hearing. MOE maintains that it needed time for discovery and to determine whether Sundquist would be prejudiced by MOE's participation in the hearing. It claims that six days' notice, with just three days to review the settlement agreement, was so inadequate
as to deprive it of constitutional due process of law. Moe appeals from an order on reconsideration of its motion for a continuance. Normally, orders on motions for continuance are reviewed for an abuse of discretion.3 However, MOE claims a violation of its right to constitutional due process, and whether notice complies with due process is
a question of law, and therefore reviewed de novo.4 Under either standard of review, we conclude that MOE was afforded sufficient notice and time to prepare.

When an insurer refuses to settle a claim, the insured and the claimant may negotiate a settlement on their own.5 The insurer may be liable for the settlement amount to the extent that it is reasonable.6 When a settlement
agreement includes a covenant not to execute, concerns arise as to whether the settlement amount is reasonable. The insured may be persuaded to settle for an inflated amount in exchange for immunity from personal
liability.

In Chaussee v. Maryland Casualty Company,7 we held that a trial court can reliably determine the reasonableness of a settlement in the context of a covenant judgment by using the factors applied in Glover v. Tacoma General
Hospital.8 Our Supreme Court has held that 'the Chaussee criteria protect insurers from excess judgments especially where . . . the insurer has
notice of the reasonableness hearing and has an opportunity to argue against the settlement's reasonableness.'9 Thus, it is common for parties
to move for a hearing to determine the reasonableness of settlement agreements.10
MOE claims that it did not participate in the reasonableness hearing because it was unsure whether it would be putting its interests ahead of the interests of Sundquist, and potentially exposing itself to liability.

Under a reservation of rights, an insurance company must defend its insured against all claims. In Tank v. State Farm Fire and Casualty Company,11 our Supreme Court explained that this obligation requires a heightened duty of
good faith by the insurer:
{T}he potential conflicts of interest between insurer and insured inherent in {a reservation of rights} defense mandate an even higher standard: an insurance company must fulfill an enhanced obligation to its insured as part of its duty of good faith. Failure to satisfy this enhanced obligation may result in liability of the company . . . .{12}

The court elaborated: '{A}n insurance company must refrain from engaging in any action which would demonstrate a greater concern for the insurer's monetary interest than for the insured's financial risk.'13 If an insurer
puts its interests in limiting coverage above the insured's interests in settling a lawsuit, it may breach its duty of good faith and expose itself to liability.

MOE claims that, under the settlement agreement, it was unclear whether the covenant not to pursue the insured's assets was dependent upon
judicial approval of the full settlement amount. The settlement agreement states that '{w}ith the approval by the court of the Stipulated Judgment described in Paragraph 2 of this Agreement, Red Oaks agrees to stipulate to
a dismissal with prejudice of all claims asserted in the lawsuit against Larry and Diane Sundquist.' Paragraph 2 indicates a settlement amount of $1,948,000. MOE argues that it did not have enough time to interpret this
clause and resolve potential conflicts because it did not obtain a copy of the settlement agreement until three days before the hearing. MOE was concerned that, if the covenant not to execute and to dismiss claims was contingent on the full settlement amount and MOE had participated in the hearing and convinced the court that the settlement amount was
unreasonable, it would breach its duty of good faith to Sundquist.
To be consistent with due process, notice 'must afford a reasonable time for those interested to make their appearance.'14 Reasonableness is
measured by the particular circumstances.15 MOE has not explained how having more time to interpret the settlement agreement would have remedied its concerns regarding a potential conflict of interest. It was aware of
the duties it owed Sundquist and the conflicts of interest involved when it defends under a reservation of rights long before the parties reached settlement. Three days was enough time to interpret the clause and decide whether to proceed as an intervener in the reasonableness hearing. And to the extent that this appeal seeks to challenge the practice of holding a
reasonableness hearing prior to coverage determination, our Supreme Court 'has already held that a reasonableness hearing in this situation is appropriate.'16
Furthermore, we do not foresee a circumstance in which an insurer would be subject to a bad faith action due to its participation in a reasonableness hearing. When an insurer is granted the opportunity to defend its interest
in such a hearing, and does so in good faith, it will not be risking greater liability. After all, the court is ultimately determining whether
the settlement is reasonable.

MOE also argues that a lack of adequate notice resulted in insufficient discovery. MOE divided its Red Oaks files between defense and coverage
issues. By separating its coverage and defense functions, MOE attempted to avoid conflicts of interest. The defense files were kept by Sundquist's appointed defense attorney, who had the duty to keep any information that might jeopardize Sundquist's coverage confidential.

MOE argues that because it divided functions, its coverage files may not have included enough information to assess the reasonableness of the
settlement. It claims that Sundquist's defense attorney might have been obligated to withhold damage and scope of repair reports that contained
details from which the insurance company could deny coverage. MOE maintains that it therefore needed more time for discovery in order to
adequately prepare for the reasonableness hearing.

In Howard v. Royal Specialty Underwriting, Inc.,17 we were presented with a similar argument. In Howard, a contractor entered into a settlement agreement with an employee and assigned its rights against its insurer.
The insurer sought a reversal of the superior court's determination that the settlement was reasonable.18 In addition to contesting the
reasonableness of the settlement, the insurer argued that the trial court erred in denying its motion for a continuance in order to conduct
discovery.19 We explained why the trial court did not abuse its discretion in denying the insurance company more time:
Royal received notice of the reasonableness hearing 30 days before the hearing. Royal was not a complete 'stranger to the case.' Royal provided , and Cascade had the opportunity to
participate in discovery. Royal had access to all of Howard's medical records and copies of the correspondence between the settling parties. At the reasonableness hearing, Royal was allowed to cross-examine Howard's
treating physician and was able to present substantial evidence. Under these circumstances, the trial court did not abuse its discretion in
refusing to reopen discovery and continue the hearing.{20}

Similarly, MOE was not a stranger to this case. It was notified of the claims against Sundquist almost a year in advance of the hearing, defended
Sundquist under a reservation of rights, agreed to the tolling of the statute of limitations, paid for an investigation into the claims, and was aware of ongoing settlement negotiations. It should have been no surprise to MOE that the parties settled quickly once a lawsuit was initiated.

Further, the trial court permitted MOE to participate in the reasonableness hearing, but it chose not to. In contrast to Howard, MOE was only given six days' notice and three days
to review the settlement agreement. But the notice indicated the settlement amount, so MOE was provided six days to determine whether the
amount was reasonable. And, as the superior court noted, whether the settlement agreement was contingent was not relevant to whether the amount was reasonable under the Chaussee factors. Given the circumstances surrounding this dispute, six days' notice was consistent with due process because it was a reasonable amount of time for MOE to make an appearance
and defend its interests at the hearing.21
AFFIRMED.

WE CONCUR:

1 Red Oaks also filed suit against MOE to obtain payment for the judgment entered in this case.
2 Red Oaks argues that we should not review the trial court's order denying MOE's motion for time to prepare because it did not designate the order in its appeal. But, under RAP 2.4(c), we can review a final judgment not designated if the notice of appeal designates an order stemming from a motion to reconsider that judgment.

3 Public Utility Dist. No. 1 of Klickitat County v. Int'l Ins. Co., 124
Wn.2d 789, 813, 881 P.2d 1020 (1994).

4 Public Utility Dist. No. 2 of Grant County v. N. Am. Foreign Trade Zone Indus., LLC, 125 Wn. App. 622, 629, 105 P.3d 441 (2005).

5 Chaussee v. Maryland Cas. Co., 60 Wn. App. 504, 509-10, 803 P.2d 1339, 812 P.2d 487 (1991).

6 Chaussee, 60 Wn. App. at 510.
7 60 Wn. App. 504, 509, 803 P.2d 1339, 812 P.2d 487 (1991).

8 Chaussee, 60 Wn. App. at 512 (applying the factors in Glover v. Tacoma Gen. Hosp., 98 Wn.2d 708, 658 P.2d 1230 (1983), overruled on other grounds, Crown Controls, Inc. v. Smiley, 110 Wn.2d 695, 756 P.2d 717 (1988)). See
also Besel v. Viking Ins. Co., 146 Wn.2d 730, 738-39, 49 P.3d 887 (2002) (applying the Chaussee-Glover factors). In Glover, the court adopted the reasonableness factors in the context of RCW 4.22.040, which governs the
availability of contribution to a tortfeasor who enters into a settlement with a claimant. Glover, 98 Wn.2d at 716-18. The factors include: the damages involved; the merits of the plaintiff's liability theory; the merits of the defense's theory; the defendant's relative faults; the risks and expenses of continued litigation; the defendant's ability to pay; any
evidence of bad faith, collusion, or fraud; the extent of the investigation and preparation of the case; and the interests of the parties not being released from liability. Glover, 98 Wn.2d at 717. 9 Besel, 146 Wn.2d at 739.
10 See, e.g., Besel, 146 Wn.2d at 734 (holding that the amount of a covenant judgment is the presumptive measure of an insured's harm if the settlement agreement is reasonable under the Chaussee factors); Werlinger v. Warner,

Wn. App. , 109 P.3d 22 (2005); Howard v. Royal Spec. Underwriting, Inc., 121 Wn. App. 372, 379, 89 P.3d 265 (2004). 11 105 Wn.2d 381, 387, 715 P.2d 1133 (1986).
12 Tank, 105 Wn.2d at 387.
13 Tank, 105 Wn.2d at 388.
14 Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 314, 70 S. Ct.
652 (1950) (citing Roller v. Holly, 176 U.S. 398, 20 S. Ct. 410 (1900);
Goodrich v. Ferris, 214 U.S. 71, 29 S. Ct. 580 (1909)).
15 Mullane, 339 U.S. at 315.
16 Howard, 121 Wn. App. at 379.
17 121 Wn. App. 372, 89 P.3d 265 (2004).
18 Howard, 121 Wn. App. at 375.
19 Howard, 121 Wn. App. at 379.
20 Howard, 121 Wn. App. at 379.
21 Six days is also proper notice under the local court rules. Snohomish
County Local Court Rule 7(b)(2)(B) states: 'Any party desiring to bring any
civil motion prior to trial, other than a motion for summary judgment, must
file such motion documents with the clerk and serve all parties, and the
court at least six (6) court days before the date fixed for such hearing.'

Court of Appeals Division I
State of Washington

Opinion Information Sheet

Docket Number: 54398-9-I
Title of Case: Red Oaks Condominium, Respondent v. Mutual
of Enumclaw, Appellant
File Date: 05/31/2005


SOURCE OF APPEAL
----------------
Appeal from Superior Court of Snohomish County
Docket No: 04-2-08703-0
Judgment or order under review
Date filed: 05/13/2004
Judge signing: Hon. Larry E McKeeman


JUDGES
------
Authored by William Baker
Concurring: Ronald Cox
Susan Agid


COUNSEL OF RECORD
-----------------
Counsel for Appellant(s)
David R Collins
Hackett Beecher & Hart
1601 5th Ave Ste 2200
Seattle, WA 98101-1651

Counsel for Respondent(s)
Charles Kenworthey Harer
Condominium Law Group PLLC
10310 Aurora Ave N
Seattle, WA 98133-9228

Heather L McCormick
Condominium Law Group PLLC
10310 Aurora Ave N
Seattle, WA 98133-9228

Gregory Turek Bartholomew
Bullivant Houser Bailey PC
1601 5th Ave Ste 2300
Seattle, WA 98101-1618

Jeffrey Guy Frank
Bullivant Houser Bailey PC
1601 5th Ave Ste 2300
Seattle, WA 98101-1618

Amicus Curiae on behalf of Ryan Swanson & Cleveland PLLC

RED OAKS CONDOMINIUM OWNERS )
ASSOCIATION, a Washington nonprofit )
corporation, )
)
Respondent, ) DIVISION ONE
)
vs. ) No. 54398-9-I
)
SUNDQUIST HOLDINGS, INC., f/k/a/ )
SUNDQUIST HOMES, INC., a Washington )
corporation, LARRY J. SUNDQUIST and )
DIANE Y. SUNDQUIST, a marital )
community, )
) ORDER GRANTING
Respondents, ) MOTION TO PUBLISH
) OPINION
and )
)
CLIFFORD A. SUNDQUIST and LAURA )
SUNDQUIST, a marital community, )
)
Defendants, )
)
vs. )
)
MUTUAL OF ENUMCLAW INSURANCE )
COMPANY, )
)
Appellant. )
)

The respondent, Red Oaks Condominium Owners Association, having filed
a motion to publish opinion, and the hearing panel having reconsidered its
prior determination and finding that the opinion will be of precedential
value; now, therefore it is hereby:
ORDERED that the unpublished opinion filed May 31, 2005, shall be
published and printed in the Washington Appellate Reports.
Done this day of July, 2005.
FOR THE COURT:

Judge

IN THE COURT OF APPEALS FOR THE STATE OF WASHINGTON

RED OAKS CONDOMINIUM OWNERS )
ASSOCIATION, a Washington nonprofit )
corporation, )
)
Respondent, ) DIVISION ONE
)
vs. ) No. 54398-9-I
)
SUNDQUIST HOLDINGS, INC., f/k/a/ )
SUNDQUIST HOMES, INC., a Washington )
corporation, LARRY J. SUNDQUIST and )
DIANE Y. SUNDQUIST, a marital )
community, )
) ORDER DENYING
Respondents, ) APPELLANT'S MOTION
) FOR RECONSIDERATION
and )
)
CLIFFORD A. SUNDQUIST and LAURA )
SUNDQUIST, a marital community, )
)
Defendants, )
)
vs. )
)
MUTUAL OF ENUMCLAW INSURANCE ) COMPANY, )
)
Appellant. )
)

The appellant, Mutual of Enumclaw Insurance Company, having filed a
motion for reconsideration herein, and a majority of the panel having
determined that the motion should be denied; now, therefore, it is hereby
ORDERED that the motion for reconsideration be, and the same is,
hereby denied.
Dated this day of July, 2005.
FOR THE COURT:

Judge

IN THE COURT OF APPEALS FOR THE STATE OF WASHINGTON

RED OAKS CONDOMINIUM OWNERS )
ASSOCIATION, a Washington nonprofit )
corporation, )
)
Respondent, ) DIVISION ONE
)
vs. ) No. 54398-9-I
)
SUNDQUIST HOLDINGS, INC., f/k/a/ )
SUNDQUIST HOMES, INC., a Washington )
corporation, LARRY J. SUNDQUIST and )
DIANE Y. SUNDQUIST, a marital )
community, )
) UNPUBLISHED OPINION
Respondents, )
)
and )
)
CLIFFORD A. SUNDQUIST and LAURA )
SUNDQUIST, a marital community, )
)
Defendants, )
)
vs. )
)
MUTUAL OF ENUMCLAW INSURANCE ) FILED: May 31, 2005
COMPANY, )
)
Appellant. )
)

BAKER, J. Red Oaks Condominium Owners Association (Red Oaks) sued its
developer, Sundquist Holdings, Inc. (Sundquist), for damages stemming from construction defects after Sundquist's insurer, Mutual of Enumclaw (MOE), refused to settle its claims. Sundquist and Red Oaks entered into a settlement agreement which was contingent on a judicial determination that it was reasonable. MOE moved to intervene in the reasonableness hearing and for a continuance. The parties stipulated to MOE's intervention, but the court denied MOE's motion for a continuance and its subsequent motion
for reconsideration. MOE appeals the court's order denying its motion to reconsider and the judgment. We affirm, and hold that MOE was provided sufficient notice, consistent with due process, because it was afforded a reasonable amount of time to conduct discovery and to identify any conflicts of interest that might have arisen from its participation in the
hearing.
I.
Red Oaks notified Sundquist of construction defects sometime in the Spring of 2002. In April of 2003, Sundquist notified MOE of Red Oaks's claims and MOE defended Sundquist under a reservation of rights. The parties entered
two consecutive agreements to toll the running of the statute of limitations as they tried to reach a settlement. MOE consented to the
tolling agreements and participated in and paid for an investigation into Red Oaks's claims.
On March 3, 2004, MOE filed a declaratory judgment action against Sundquist disputing coverage of Red Oaks's claims.1 The following day, Sundquist and Red Oaks began mediation and agreed on an amount of damages, but MOE
refused to pay, so the parties did not reach settlement. Red Oaks filed suit against Sundquist on March 31. Two days later, Red Oaks and Sundquist entered into a settlement agreement whereby Sundquist stipulated to a
settlement amount of $1,948,000 and assigned its rights against MOE to Red Oaks in exchange for a covenant not to execute and dismissal of the claims against the individual defendants in the lawsuit. The agreement was contingent on a court finding the settlement reasonable.
Red Oaks requested a hearing to determine whether the settlement agreement was reasonable, and delivered a copy of the motion to MOE six business days before the hearing. MOE did not receive a copy of the settlement agreement
until three days before the hearing. MOE moved to intervene and requested a continuance in order to prepare and conduct discovery.
The parties stipulated that MOE could intervene in the reasonableness hearing, but the superior court denied MOE's motion for a continuance.
Although given the opportunity, MOE did not participate in the hearing.

The court found that the settlement agreement was reasonable, and entered judgment consistent with the agreement. MOE appeals the order denying reconsideration of its motion for continuance and the judgment.2
II.
MOE argues that the trial court denied it due process by refusing it time to prepare for the reasonableness hearing. MOE maintains that it needed time for discovery and to determine whether Sundquist would be prejudiced by MOE's participation in the hearing. It claims that six days' notice, with just three days to review the settlement agreement, was so inadequate
as to deprive it of constitutional due process of law. Moe appeals from an order on reconsideration of its motion for a continuance. Normally, orders on motions for continuance are reviewed for an abuse of discretion.3 However, MOE claims a violation of its right to constitutional due process, and whether notice complies with due process is
a question of law, and therefore reviewed de novo.4 Under either standard of review, we conclude that MOE was afforded sufficient notice and time to prepare.

When an insurer refuses to settle a claim, the insured and the claimant may negotiate a settlement on their own.5 The insurer may be liable for the settlement amount to the extent that it is reasonable.6 When a settlement
agreement includes a covenant not to execute, concerns arise as to whether the settlement amount is reasonable. The insured may be persuaded to settle for an inflated amount in exchange for immunity from personal
liability.

In Chaussee v. Maryland Casualty Company,7 we held that a trial court can reliably determine the reasonableness of a settlement in the context of a covenant judgment by using the factors applied in Glover v. Tacoma General
Hospital.8 Our Supreme Court has held that 'the Chaussee criteria protect insurers from excess judgments especially where . . . the insurer has
notice of the reasonableness hearing and has an opportunity to argue against the settlement's reasonableness.'9 Thus, it is common for parties
to move for a hearing to determine the reasonableness of settlement agreements.10
MOE claims that it did not participate in the reasonableness hearing because it was unsure whether it would be putting its interests ahead of the interests of Sundquist, and potentially exposing itself to liability.

Under a reservation of rights, an insurance company must defend its insured against all claims. In Tank v. State Farm Fire and Casualty Company,11 our Supreme Court explained that this obligation requires a heightened duty of
good faith by the insurer:
{T}he potential conflicts of interest between insurer and insured inherent in {a reservation of rights} defense mandate an even higher standard: an insurance company must fulfill an enhanced obligation to its insured as part of its duty of good faith. Failure to satisfy this enhanced obligation may result in liability of the company . . . .{12}

The court elaborated: '{A}n insurance company must refrain from engaging in any action which would demonstrate a greater concern for the insurer's monetary interest than for the insured's financial risk.'13 If an insurer
puts its interests in limiting coverage above the insured's interests in settling a lawsuit, it may breach its duty of good faith and expose itself to liability.

MOE claims that, under the settlement agreement, it was unclear whether the covenant not to pursue the insured's assets was dependent upon
judicial approval of the full settlement amount. The settlement agreement states that '{w}ith the approval by the court of the Stipulated Judgment described in Paragraph 2 of this Agreement, Red Oaks agrees to stipulate to
a dismissal with prejudice of all claims asserted in the lawsuit against Larry and Diane Sundquist.' Paragraph 2 indicates a settlement amount of $1,948,000. MOE argues that it did not have enough time to interpret this
clause and resolve potential conflicts because it did not obtain a copy of the settlement agreement until three days before the hearing. MOE was concerned that, if the covenant not to execute and to dismiss claims was contingent on the full settlement amount and MOE had participated in the hearing and convinced the court that the settlement amount was
unreasonable, it would breach its duty of good faith to Sundquist.
To be consistent with due process, notice 'must afford a reasonable time for those interested to make their appearance.'14 Reasonableness is
measured by the particular circumstances.15 MOE has not explained how having more time to interpret the settlement agreement would have remedied its concerns regarding a potential conflict of interest. It was aware of
the duties it owed Sundquist and the conflicts of interest involved when it defends under a reservation of rights long before the parties reached settlement. Three days was enough time to interpret the clause and decide whether to proceed as an intervener in the reasonableness hearing. And to the extent that this appeal seeks to challenge the practice of holding a
reasonableness hearing prior to coverage determination, our Supreme Court 'has already held that a reasonableness hearing in this situation is appropriate.'16
Furthermore, we do not foresee a circumstance in which an insurer would be subject to a bad faith action due to its participation in a reasonableness hearing. When an insurer is granted the opportunity to defend its interest
in such a hearing, and does so in good faith, it will not be risking greater liability. After all, the court is ultimately determining whether
the settlement is reasonable.

MOE also argues that a lack of adequate notice resulted in insufficient discovery. MOE divided its Red Oaks files between defense and coverage
issues. By separating its coverage and defense functions, MOE attempted to avoid conflicts of interest. The defense files were kept by Sundquist's appointed defense attorney, who had the duty to keep any information that might jeopardize Sundquist's coverage confidential.

MOE argues that because it divided functions, its coverage files may not have included enough information to assess the reasonableness of the
settlement. It claims that Sundquist's defense attorney might have been obligated to withhold damage and scope of repair reports that contained
details from which the insurance company could deny coverage. MOE maintains that it therefore needed more time for discovery in order to
adequately prepare for the reasonableness hearing.

In Howard v. Royal Specialty Underwriting, Inc.,17 we were presented with a similar argument. In Howard, a contractor entered into a settlement agreement with an employee and assigned its rights against its insurer.
The insurer sought a reversal of the superior court's determination that the settlement was reasonable.18 In addition to contesting the
reasonableness of the settlement, the insurer argued that the trial court erred in denying its motion for a continuance in order to conduct
discovery.19 We explained why the trial court did not abuse its discretion in denying the insurance company more time:
Royal received notice of the reasonableness hearing 30 days before the hearing. Royal was not a complete 'stranger to the case.' Royal provided , and Cascade had the opportunity to
participate in discovery. Royal had access to all of Howard's medical records and copies of the correspondence between the settling parties. At the reasonableness hearing, Royal was allowed to cross-examine Howard's
treating physician and was able to present substantial evidence. Under these circumstances, the trial court did not abuse its discretion in
refusing to reopen discovery and continue the hearing.{20}

Similarly, MOE was not a stranger to this case. It was notified of the claims against Sundquist almost a year in advance of the hearing, defended
Sundquist under a reservation of rights, agreed to the tolling of the statute of limitations, paid for an investigation into the claims, and was aware of ongoing settlement negotiations. It should have been no surprise to MOE that the parties settled quickly once a lawsuit was initiated.

Further, the trial court permitted MOE to participate in the reasonableness hearing, but it chose not to. In contrast to Howard, MOE was only given six days' notice and three days
to review the settlement agreement. But the notice indicated the settlement amount, so MOE was provided six days to determine whether the
amount was reasonable. And, as the superior court noted, whether the settlement agreement was contingent was not relevant to whether the amount was reasonable under the Chaussee factors. Given the circumstances surrounding this dispute, six days' notice was consistent with due process because it was a reasonable amount of time for MOE to make an appearance
and defend its interests at the hearing.21
AFFIRMED.

WE CONCUR:

1 Red Oaks also filed suit against MOE to obtain payment for the judgment entered in this case.
2 Red Oaks argues that we should not review the trial court's order denying MOE's motion for time to prepare because it did not designate the order in its appeal. But, under RAP 2.4(c), we can review a final judgment not designated if the notice of appeal designates an order stemming from a motion to reconsider that judgment.

3 Public Utility Dist. No. 1 of Klickitat County v. Int'l Ins. Co., 124
Wn.2d 789, 813, 881 P.2d 1020 (1994).

4 Public Utility Dist. No. 2 of Grant County v. N. Am. Foreign Trade Zone Indus., LLC, 125 Wn. App. 622, 629, 105 P.3d 441 (2005).

5 Chaussee v. Maryland Cas. Co., 60 Wn. App. 504, 509-10, 803 P.2d 1339, 812 P.2d 487 (1991).

6 Chaussee, 60 Wn. App. at 510.
7 60 Wn. App. 504, 509, 803 P.2d 1339, 812 P.2d 487 (1991).

8 Chaussee, 60 Wn. App. at 512 (applying the factors in Glover v. Tacoma Gen. Hosp., 98 Wn.2d 708, 658 P.2d 1230 (1983), overruled on other grounds, Crown Controls, Inc. v. Smiley, 110 Wn.2d 695, 756 P.2d 717 (1988)). See
also Besel v. Viking Ins. Co., 146 Wn.2d 730, 738-39, 49 P.3d 887 (2002) (applying the Chaussee-Glover factors). In Glover, the court adopted the reasonableness factors in the context of RCW 4.22.040, which governs the
availability of contribution to a tortfeasor who enters into a settlement with a claimant. Glover, 98 Wn.2d at 716-18. The factors include: the damages involved; the merits of the plaintiff's liability theory; the merits of the defense's theory; the defendant's relative faults; the risks and expenses of continued litigation; the defendant's ability to pay; any
evidence of bad faith, collusion, or fraud; the extent of the investigation and preparation of the case; and the interests of the parties not being released from liability. Glover, 98 Wn.2d at 717. 9 Besel, 146 Wn.2d at 739.
10 See, e.g., Besel, 146 Wn.2d at 734 (holding that the amount of a covenant judgment is the presumptive measure of an insured's harm if the settlement agreement is reasonable under the Chaussee factors); Werlinger v. Warner,

Wn. App. , 109 P.3d 22 (2005); Howard v. Royal Spec. Underwriting, Inc., 121 Wn. App. 372, 379, 89 P.3d 265 (2004). 11 105 Wn.2d 381, 387, 715 P.2d 1133 (1986).
12 Tank, 105 Wn.2d at 387.
13 Tank, 105 Wn.2d at 388.
14 Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 314, 70 S. Ct.
652 (1950) (citing Roller v. Holly, 176 U.S. 398, 20 S. Ct. 410 (1900);
Goodrich v. Ferris, 214 U.S. 71, 29 S. Ct. 580 (1909)).
15 Mullane, 339 U.S. at 315.
16 Howard, 121 Wn. App. at 379.
17 121 Wn. App. 372, 89 P.3d 265 (2004).
18 Howard, 121 Wn. App. at 375.
19 Howard, 121 Wn. App. at 379.
20 Howard, 121 Wn. App. at 379.
21 Six days is also proper notice under the local court rules. Snohomish
County Local Court Rule 7(b)(2)(B) states: 'Any party desiring to bring any
civil motion prior to trial, other than a motion for summary judgment, must
file such motion documents with the clerk and serve all parties, and the
court at least six (6) court days before the date fixed for such hearing.'

Court of Appeals Division I
State of Washington

Opinion Information Sheet

Docket Number: 54398-9-I
Title of Case: Red Oaks Condominium, Respondent v. Mutual
of Enumclaw, Appellant
File Date: 05/31/2005


SOURCE OF APPEAL
----------------
Appeal from Superior Court of Snohomish County
Docket No: 04-2-08703-0
Judgment or order under review
Date filed: 05/13/2004
Judge signing: Hon. Larry E McKeeman


JUDGES
------
Authored by William Baker
Concurring: Ronald Cox
Susan Agid


COUNSEL OF RECORD
-----------------
Counsel for Appellant(s)
David R Collins
Hackett Beecher & Hart
1601 5th Ave Ste 2200
Seattle, WA 98101-1651

Counsel for Respondent(s)
Charles Kenworthey Harer
Condominium Law Group PLLC
10310 Aurora Ave N
Seattle, WA 98133-9228

Heather L McCormick
Condominium Law Group PLLC
10310 Aurora Ave N
Seattle, WA 98133-9228

Gregory Turek Bartholomew
Bullivant Houser Bailey PC
1601 5th Ave Ste 2300
Seattle, WA 98101-1618

Jeffrey Guy Frank
Bullivant Houser Bailey PC
1601 5th Ave Ste 2300
Seattle, WA 98101-1618

Amicus Curiae on behalf of Ryan Swanson & Cleveland PLLC

RED OAKS CONDOMINIUM OWNERS )
ASSOCIATION, a Washington nonprofit )
corporation, )
)
Respondent, ) DIVISION ONE
)
vs. ) No. 54398-9-I
)
SUNDQUIST HOLDINGS, INC., f/k/a/ )
SUNDQUIST HOMES, INC., a Washington )
corporation, LARRY J. SUNDQUIST and )
DIANE Y. SUNDQUIST, a marital )
community, )
) ORDER GRANTING
Respondents, ) MOTION TO PUBLISH
) OPINION
and )
)
CLIFFORD A. SUNDQUIST and LAURA )
SUNDQUIST, a marital community, )
)
Defendants, )
)
vs. )
)
MUTUAL OF ENUMCLAW INSURANCE )
COMPANY, )
)
Appellant. )
)

The respondent, Red Oaks Condominium Owners Association, having filed
a motion to publish opinion, and the hearing panel having reconsidered its
prior determination and finding that the opinion will be of precedential
value; now, therefore it is hereby:
ORDERED that the unpublished opinion filed May 31, 2005, shall be
published and printed in the Washington Appellate Reports.
Done this day of July, 2005.
FOR THE COURT:

Judge

IN THE COURT OF APPEALS FOR THE STATE OF WASHINGTON

RED OAKS CONDOMINIUM OWNERS )
ASSOCIATION, a Washington nonprofit )
corporation, )
)
Respondent, ) DIVISION ONE
)
vs. ) No. 54398-9-I
)
SUNDQUIST HOLDINGS, INC., f/k/a/ )
SUNDQUIST HOMES, INC., a Washington )
corporation, LARRY J. SUNDQUIST and )
DIANE Y. SUNDQUIST, a marital )
community, )
) ORDER DENYING
Respondents, ) APPELLANT'S MOTION
) FOR RECONSIDERATION
and )
)
CLIFFORD A. SUNDQUIST and LAURA )
SUNDQUIST, a marital community, )
)
Defendants, )
)
vs. )
)
MUTUAL OF ENUMCLAW INSURANCE ) COMPANY, )
)
Appellant. )
)

The appellant, Mutual of Enumclaw Insurance Company, having filed a
motion for reconsideration herein, and a majority of the panel having
determined that the motion should be denied; now, therefore, it is hereby
ORDERED that the motion for reconsideration be, and the same is,
hereby denied.
Dated this day of July, 2005.
FOR THE COURT:

Judge

IN THE COURT OF APPEALS FOR THE STATE OF WASHINGTON

RED OAKS CONDOMINIUM OWNERS )
ASSOCIATION, a Washington nonprofit )
corporation, )
)
Respondent, ) DIVISION ONE
)
vs. ) No. 54398-9-I
)
SUNDQUIST HOLDINGS, INC., f/k/a/ )
SUNDQUIST HOMES, INC., a Washington )
corporation, LARRY J. SUNDQUIST and )
DIANE Y. SUNDQUIST, a marital )
community, )
) UNPUBLISHED OPINION
Respondents, )
)
and )
)
CLIFFORD A. SUNDQUIST and LAURA )
SUNDQUIST, a marital community, )
)
Defendants, )
)
vs. )
)
MUTUAL OF ENUMCLAW INSURANCE ) FILED: May 31, 2005
COMPANY, )
)
Appellant. )
)

BAKER, J. Red Oaks Condominium Owners Association (Red Oaks) sued its
developer, Sundquist Holdings, Inc. (Sundquist), for damages stemming from construction defects after Sundquist's insurer, Mutual of Enumclaw (MOE), refused to settle its claims. Sundquist and Red Oaks entered into a settlement agreement which was contingent on a judicial determination that it was reasonable. MOE moved to intervene in the reasonableness hearing and for a continuance. The parties stipulated to MOE's intervention, but the court denied MOE's motion for a continuance and its subsequent motion
for reconsideration. MOE appeals the court's order denying its motion to reconsider and the judgment. We affirm, and hold that MOE was provided sufficient notice, consistent with due process, because it was afforded a reasonable amount of time to conduct discovery and to identify any conflicts of interest that might have arisen from its participation in the
hearing.
I.
Red Oaks notified Sundquist of construction defects sometime in the Spring of 2002. In April of 2003, Sundquist notified MOE of Red Oaks's claims and MOE defended Sundquist under a reservation of rights. The parties entered
two consecutive agreements to toll the running of the statute of limitations as they tried to reach a settlement. MOE consented to the
tolling agreements and participated in and paid for an investigation into Red Oaks's claims.
On March 3, 2004, MOE filed a declaratory judgment action against Sundquist disputing coverage of Red Oaks's claims.1 The following day, Sundquist and Red Oaks began mediation and agreed on an amount of damages, but MOE
refused to pay, so the parties did not reach settlement. Red Oaks filed suit against Sundquist on March 31. Two days later, Red Oaks and Sundquist entered into a settlement agreement whereby Sundquist stipulated to a
settlement amount of $1,948,000 and assigned its rights against MOE to Red Oaks in exchange for a covenant not to execute and dismissal of the claims against the individual defendants in the lawsuit. The agreement was contingent on a court finding the settlement reasonable.
Red Oaks requested a hearing to determine whether the settlement agreement was reasonable, and delivered a copy of the motion to MOE six business days before the hearing. MOE did not receive a copy of the settlement agreement
until three days before the hearing. MOE moved to intervene and requested a continuance in order to prepare and conduct discovery.
The parties stipulated that MOE could intervene in the reasonableness hearing, but the superior court denied MOE's motion for a continuance.
Although given the opportunity, MOE did not participate in the hearing.

The court found that the settlement agreement was reasonable, and entered judgment consistent with the agreement. MOE appeals the order denying reconsideration of its motion for continuance and the judgment.2
II.
MOE argues that the trial court denied it due process by refusing it time to prepare for the reasonableness hearing. MOE maintains that it needed time for discovery and to determine whether Sundquist would be prejudiced by MOE's participation in the hearing. It claims that six days' notice, with just three days to review the settlement agreement, was so inadequate
as to deprive it of constitutional due process of law. Moe appeals from an order on reconsideration of its motion for a continuance. Normally, orders on motions for continuance are reviewed for an abuse of discretion.3 However, MOE claims a violation of its right to constitutional due process, and whether notice complies with due process is
a question of law, and therefore reviewed de novo.4 Under either standard of review, we conclude that MOE was afforded sufficient notice and time to prepare.

When an insurer refuses to settle a claim, the insured and the claimant may negotiate a settlement on their own.5 The insurer may be liable for the settlement amount to the extent that it is reasonable.6 When a settlement
agreement includes a covenant not to execute, concerns arise as to whether the settlement amount is reasonable. The insured may be persuaded to settle for an inflated amount in exchange for immunity from personal
liability.

In Chaussee v. Maryland Casualty Company,7 we held that a trial court can reliably determine the reasonableness of a settlement in the context of a covenant judgment by using the factors applied in Glover v. Tacoma General
Hospital.8 Our Supreme Court has held that 'the Chaussee criteria protect insurers from excess judgments especially where . . . the insurer has
notice of the reasonableness hearing and has an opportunity to argue against the settlement's reasonableness.'9 Thus, it is common for parties
to move for a hearing to determine the reasonableness of settlement agreements.10
MOE claims that it did not participate in the reasonableness hearing because it was unsure whether it would be putting its interests ahead of the interests of Sundquist, and potentially exposing itself to liability.

Under a reservation of rights, an insurance company must defend its insured against all claims. In Tank v. State Farm Fire and Casualty Company,11 our Supreme Court explained that this obligation requires a heightened duty of
good faith by the insurer:
{T}he potential conflicts of interest between insurer and insured inherent in {a reservation of rights} defense mandate an even higher standard: an insurance company must fulfill an enhanced obligation to its insured as part of its duty of good faith. Failure to satisfy this enhanced obligation may result in liability of the company . . . .{12}

The court elaborated: '{A}n insurance company must refrain from engaging in any action which would demonstrate a greater concern for the insurer's monetary interest than for the insured's financial risk.'13 If an insurer
puts its interests in limiting coverage above the insured's interests in settling a lawsuit, it may breach its duty of good faith and expose itself to liability.

MOE claims that, under the settlement agreement, it was unclear whether the covenant not to pursue the insured's assets was dependent upon
judicial approval of the full settlement amount. The settlement agreement states that '{w}ith the approval by the court of the Stipulated Judgment described in Paragraph 2 of this Agreement, Red Oaks agrees to stipulate to
a dismissal with prejudice of all claims asserted in the lawsuit against Larry and Diane Sundquist.' Paragraph 2 indicates a settlement amount of $1,948,000. MOE argues that it did not have enough time to interpret this
clause and resolve potential conflicts because it did not obtain a copy of the settlement agreement until three days before the hearing. MOE was concerned that, if the covenant not to execute and to dismiss claims was contingent on the full settlement amount and MOE had participated in the hearing and convinced the court that the settlement amount was
unreasonable, it would breach its duty of good faith to Sundquist.
To be consistent with due process, notice 'must afford a reasonable time for those interested to make their appearance.'14 Reasonableness is
measured by the particular circumstances.15 MOE has not explained how having more time to interpret the settlement agreement would have remedied its concerns regarding a potential conflict of interest. It was aware of
the duties it owed Sundquist and the conflicts of interest involved when it defends under a reservation of rights long before the parties reached settlement. Three days was enough time to interpret the clause and decide whether to proceed as an intervener in the reasonableness hearing. And to the extent that this appeal seeks to challenge the practice of holding a
reasonableness hearing prior to coverage determination, our Supreme Court 'has already held that a reasonableness hearing in this situation is appropriate.'16
Furthermore, we do not foresee a circumstance in which an insurer would be subject to a bad faith action due to its participation in a reasonableness hearing. When an insurer is granted the opportunity to defend its interest
in such a hearing, and does so in good faith, it will not be risking greater liability. After all, the court is ultimately determining whether
the settlement is reasonable.

MOE also argues that a lack of adequate notice resulted in insufficient discovery. MOE divided its Red Oaks files between defense and coverage
issues. By separating its coverage and defense functions, MOE attempted to avoid conflicts of interest. The defense files were kept by Sundquist's appointed defense attorney, who had the duty to keep any information that might jeopardize Sundquist's coverage confidential.

MOE argues that because it divided functions, its coverage files may not have included enough information to assess the reasonableness of the
settlement. It claims that Sundquist's defense attorney might have been obligated to withhold damage and scope of repair reports that contained
details from which the insurance company could deny coverage. MOE maintains that it therefore needed more time for discovery in order to
adequately prepare for the reasonableness hearing.

In Howard v. Royal Specialty Underwriting, Inc.,17 we were presented with a similar argument. In Howard, a contractor entered into a settlement agreement with an employee and assigned its rights against its insurer.
The insurer sought a reversal of the superior court's determination that the settlement was reasonable.18 In addition to contesting the
reasonableness of the settlement, the insurer argued that the trial court erred in denying its motion for a continuance in order to conduct
discovery.19 We explained why the trial court did not abuse its discretion in denying the insurance company more time:
Royal received notice of the reasonableness hearing 30 days before the hearing. Royal was not a complete 'stranger to the case.' Royal provided , and Cascade had the opportunity to
participate in discovery. Royal had access to all of Howard's medical records and copies of the correspondence between the settling parties. At the reasonableness hearing, Royal was allowed to cross-examine Howard's
treating physician and was able to present substantial evidence. Under these circumstances, the trial court did not abuse its discretion in
refusing to reopen discovery and continue the hearing.{20}

Similarly, MOE was not a stranger to this case. It was notified of the claims against Sundquist almost a year in advance of the hearing, defended
Sundquist under a reservation of rights, agreed to the tolling of the statute of limitations, paid for an investigation into the claims, and was aware of ongoing settlement negotiations. It should have been no surprise to MOE that the parties settled quickly once a lawsuit was initiated.

Further, the trial court permitted MOE to participate in the reasonableness hearing, but it chose not to. In contrast to Howard, MOE was only given six days' notice and three days
to review the settlement agreement. But the notice indicated the settlement amount, so MOE was provided six days to determine whether the
amount was reasonable. And, as the superior court noted, whether the settlement agreement was contingent was not relevant to whether the amount was reasonable under the Chaussee factors. Given the circumstances surrounding this dispute, six days' notice was consistent with due process because it was a reasonable amount of time for MOE to make an appearance
and defend its interests at the hearing.21
AFFIRMED.

WE CONCUR:

1 Red Oaks also filed suit against MOE to obtain payment for the judgment entered in this case.
2 Red Oaks argues that we should not review the trial court's order denying MOE's motion for time to prepare because it did not designate the order in its appeal. But, under RAP 2.4(c), we can review a final judgment not designated if the notice of appeal designates an order stemming from a motion to reconsider that judgment.

3 Public Utility Dist. No. 1 of Klickitat County v. Int'l Ins. Co., 124
Wn.2d 789, 813, 881 P.2d 1020 (1994).

4 Public Utility Dist. No. 2 of Grant County v. N. Am. Foreign Trade Zone Indus., LLC, 125 Wn. App. 622, 629, 105 P.3d 441 (2005).

5 Chaussee v. Maryland Cas. Co., 60 Wn. App. 504, 509-10, 803 P.2d 1339, 812 P.2d 487 (1991).

6 Chaussee, 60 Wn. App. at 510.
7 60 Wn. App. 504, 509, 803 P.2d 1339, 812 P.2d 487 (1991).

8 Chaussee, 60 Wn. App. at 512 (applying the factors in Glover v. Tacoma Gen. Hosp., 98 Wn.2d 708, 658 P.2d 1230 (1983), overruled on other grounds, Crown Controls, Inc. v. Smiley, 110 Wn.2d 695, 756 P.2d 717 (1988)). See
also Besel v. Viking Ins. Co., 146 Wn.2d 730, 738-39, 49 P.3d 887 (2002) (applying the Chaussee-Glover factors). In Glover, the court adopted the reasonableness factors in the context of RCW 4.22.040, which governs the
availability of contribution to a tortfeasor who enters into a settlement with a claimant. Glover, 98 Wn.2d at 716-18. The factors include: the damages involved; the merits of the plaintiff's liability theory; the merits of the defense's theory; the defendant's relative faults; the risks and expenses of continued litigation; the defendant's ability to pay; any
evidence of bad faith, collusion, or fraud; the extent of the investigation and preparation of the case; and the interests of the parties not being released from liability. Glover, 98 Wn.2d at 717. 9 Besel, 146 Wn.2d at 739.
10 See, e.g., Besel, 146 Wn.2d at 734 (holding that the amount of a covenant judgment is the presumptive measure of an insured's harm if the settlement agreement is reasonable under the Chaussee factors); Werlinger v. Warner,

Wn. App. , 109 P.3d 22 (2005); Howard v. Royal Spec. Underwriting, Inc., 121 Wn. App. 372, 379, 89 P.3d 265 (2004). 11 105 Wn.2d 381, 387, 715 P.2d 1133 (1986).
12 Tank, 105 Wn.2d at 387.
13 Tank, 105 Wn.2d at 388.
14 Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 314, 70 S. Ct.
652 (1950) (citing Roller v. Holly, 176 U.S. 398, 20 S. Ct. 410 (1900);
Goodrich v. Ferris, 214 U.S. 71, 29 S. Ct. 580 (1909)).
15 Mullane, 339 U.S. at 315.
16 Howard, 121 Wn. App. at 379.
17 121 Wn. App. 372, 89 P.3d 265 (2004).
18 Howard, 121 Wn. App. at 375.
19 Howard, 121 Wn. App. at 379.
20 Howard, 121 Wn. App. at 379.
21 Six days is also proper notice under the local court rules. Snohomish
County Local Court Rule 7(b)(2)(B) states: 'Any party desiring to bring any
civil motion prior to trial, other than a motion for summary judgment, must
file such motion documents with the clerk and serve all parties, and the
court at least six (6) court days before the date fixed for such hearing.'

Enumclaw f* Insurance
Group"
February 8, 2005
Fritz Denzer
State of Washington
Office of Insurance Commissioner
PO Box 40256
Olympia, WA 98504-0256
RE: Policyholder: Sundquist Homes
Complainant: Cheryl Whitcomb

Dear Mr. Denzer:
This will acknowledge receipt of your recent inquiry. Mutual of Enumclaw provided a policy
on behalf of Sundquist Homes during the timeframe relevant to Ms. Whitcomb's complaints,
which arise from Mutual of Enumclaw's refusal to pay a judgment achieved by settlement
between the Red Oaks Homeowners and Mutual of Enumclaw's insured, Sundquist Homes.
The Red Oaks' Homeowners sued Sundquist for construction defects. (Red Oaks, v.
Sundquist Holdings, Snohomish County Superior Court Case No. 04-2-08703-0.) After a
protracted negotiation and an investigation of the damage in which Mutual of Enumclaw
defended Sundquist under a reservation of rights (and funded the investigation), Sundquist
settled the dispute with Red Oaks by stipulated covenant judgment.

The settlement involved
an assignment of Sundquist's insurance rights against Mutual of Enumclaw to the Red Oaks
Homeowners, as well as a conditional payment of $100,000 from Sundquist to the
Homeowners. (The Homeowners are obligated to repay the $100,000 if they collect against
Mutual of Enumclaw.) The covenant judgment was approved by the Snohomish County
Superior Court at a Reasonableness Hearing in April 2004. When it was notified of the
hearing Mutual of Enumclaw intervened in order to participate at the Reasonableness
Hearing and requested a continuance because it was given short notice of the hearing. The
continuance was denied and Mutual of Enumclaw has appealed to the Court of Appeals
arguing it was deprived of due process as a result of the short notice, and the failure of the notice to contain a copy of the Settlement Agreement.

In addition to the case against Sundquist by Red Oaks, Red Oaks has brought an action
against Mutual of Enumclaw in which it hopes to recover the amount of the settlement and
damages it claims resulted from bad faith by Mutual of Enumclaw in dealing with Sundquist's
claim for indemnification. (Red Oaks v. American States and Mutual of Enumclaw, King
County Superior Court Case No. 04-2-08029-1 SEA.) This case is pending in King County
Superior Court. Mutual of Enumclaw is defending this action based on its belief that the
damage to the buildings is not covered by the policy it provided to Sundquist Homes.
1460 Wells Street, Enumclaw, WA 98022 (360) 825-2591 FAX (360) 825-6502

Page Two
Policyholder: Sundquist Homes
Complainant: Cheryl Whitcomb
The primary bases for this coverage stance are exclusions for the insured's product, the
insured's work, and the insured's faulty workmanship. These exclusions are designed to
prevent coverage for the insured's failure to provide an adequate quality of work while
covering the insured for casualty losses resulting from the bad work.

Although these
coverage issues are debatable the company believes they are meritorious. In recent months
some Washington courts have confirmed Mutual of Enumclaw's position. In Mutual of
Enumclaw, v. Patrick Archer Construction, Wn. App. __, 97 P.3d 751 (2004), the Court of
Appeals held that the exclusions in the CGL policy (identical to the one issued to Sundquist
Homes) prevented similar damage claims. Just a week ago a King County Superior Court
judge held that the exclusions contained in the Umbrella Policy (identical to the one issued to
Sundquist Homes) similarly excluded these types of claims. (Mutual of Enumclaw v.
MacPherson Construction, King County Superior Court Case No. 04-2-20363-5SEA.)
It is uncertain when the Red Oaks cases will be resolved.

We are awaiting notification of an
argument date in the case pending in the Court of Appeals. At present, trial for the King
County Superior Court case is scheduled in August of this year. As you can see, this is a
complex case but our position has been clear from the outset that there is no coverage
which would allow us to consider the damage Ms. Whitcomb complains about. If she needs
any further information I would suggest she contact counsel for the homeowners association.
Thank you for your interest. If you have any further questions please let me know.
-A
Klie
Dire'btaLefExamining
Mutual of Enumclaw Insurance Company
1-360-825-2591
rkjjegjjrn utual ofenumclaw. com
1460 Wells Street, Enumclaw, WA 98022 (360) 825-2591 FAX (360) 825-6502

The above pictures are from the Red Oaks Condominium built in 1999 by Sundquist Homes.