Rhonda & Brett Peck, V. Encompass Insurance Co

• Court: Court of Appeals of Washington
• Decided: October 28, 2024
• Docket: 85775-4
• Status: Unpublished

Opinion

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON DIVISION ONE

RHONDA PECK AND BRETT PECK, No. 85775-4-I individually and as husband and wife (consolidated with No. 85995-1-I) and the marital community composed thereof,

Respondents,

v. UNPUBLISHED OPINION

ENCOMPASS INSURANCE COMPANY OF AMERICA, a foreign insurer,

Appellant.

BOWMAN, J. — Rhonda and Brett Peck sued Encompass Insurance

Company of America for breach of contract, insurance bad faith, and violations of

the WAC, the Consumer Protection Act (CPA), chapter 19.86 RCW, and the

Insurance Fair Conduct Act (IFCA), RCW 48.30.010 to .015. Encompass failed

to appear or respond to their lawsuit, so the Pecks obtained a default order and

judgment. When the Pecks tried to collect on the judgment, Encompass moved

to set aside the default orders. The trial court first granted the motion but then

granted the Pecks’ motion for reconsideration and reinstated the default order

and judgment. Encompass appeals. Because the trial court properly granted the

Pecks’ motion for reconsideration, we affirm. No. 85775-4-I (consol. with No. 85995-1-I)/2

FACTS

In August 2018, Rhonda1 suffered injuries from a rear-end car collision in

Redmond, which “totaled” her car. The other driver was insured but had a policy

limit of $50,000. After negotiations, the other driver’s insurance company settled

with Rhonda for the policy limit. Rhonda then claimed coverage under her own

underinsured motorist (UIM) policy with Encompass. Encompass did not dispute

UIM coverage but denied the claim, concluding that the $50,000 settlement “fully

compensated” Rhonda for her injuries.

In February 2021, the Pecks’ attorney wrote to Encompass, alleging that it

denied the claim in bad faith under RCW 48.01.030 and engaged in unfair

settlement practices in violation of WAC 284-30-330. It also put Encompass on

notice that it violated the IFCA. The next month, Encompass hired an attorney

“to review and reply to” the Pecks’ IFCA notice. And on March 22, 2021,

Encompass’ attorney sent the Pecks a letter disputing any IFCA or WAC

violations and asserting again that Encompass believed the $50,000 settlement

“fully compensated” Rhonda. But Encompass remained “willing to consider

additional information.”

According to Encompass, on May 13, 2021, both parties’ attorneys

discussed the claim in a phone call. They talked about Rhonda’s UIM claim and

the possibility of a lawsuit given Encompass’ response to the Pecks’ IFCA notice.

That same day, Encompass sent a form letter to the Pecks’ lawyer, titled, “Re:

1 We refer to Rhonda Peck by her first name when necessary for clarity and intend no disrespect by doing so.

2 No. 85775-4-I (consol. with No. 85995-1-I)/3

Your Client’s Claim Status.” The letter stated that the “medical and or wage

investigation is continuing” and that Encompass would “continue to update” him

on the status of Rhonda’s claim. It concluded with, “If you want to discuss any

concerns or questions regarding the claim process, please feel free to call.”

On May 21, 2021, the Pecks sued Encompass, alleging breach of

contract, WAC violations, violations of the CPA and the IFCA, and insurance bad

faith. Three days later, the Pecks served the Office of the Insurance

Commissioner (OIC) with a copy of the complaint and summons under RCW

48.05.200.2 The OIC then forwarded the complaint and summons to

Encompass.3

On June 10 and July 9, 2021, Encompass again sent form letters to the

Pecks’ attorney, explaining that Rhonda’s “medical and or wage investigation is

continuing,” that Encompass would continue to update him on the status of the

claim, and that he could call with any questions or concerns. But Encompass did

not answer the Pecks’ complaint. So, on July 12, 2021, the Pecks moved for an

order of default. The trial court entered a default order the same day. And on

May 13, 2022, the Pecks moved for default judgment, which the trial court also

granted the same day.

2 Under that statute, a foreign insurance company “must appoint the [OIC] as its attorney to receive service of, and upon whom must be served, all legal process issued against it in this state upon causes of action arising within the state.” RCW 48.05.200(1). 3 While the record does not show that Encompass received service of process, Encompass acknowledges in its opening brief that the Pecks “served a Summons and Complaint through the [OIC].” Specifically, Encompass states it “received a copy of the Lawsuit on May 26, 2021.”

3 No. 85775-4-I (consol. with No. 85995-1-I)/4

In May 2023, the Pecks applied for a writ of garnishment, seeking to

collect on their judgment. Nearly two months later, Encompass moved to set

aside the default orders. Encompass argued that it had a right to notice of the

Pecks’ motion for default because it substantially appeared in the lawsuit.

Encompass asked the court to set aside the default orders under CR 55(a)(3)

and 60(b)(4). The trial court granted the motion.

The Pecks then moved for reconsideration under CR 59(a)(7) and (9),

arguing that the court’s ruling is contrary to law and does not do substantial

justice because Encompass’ actions did not meet the legal standard for

substantial appearance in their lawsuit. The court agreed, granted

reconsideration under CR 59(a)(7) and (9), and reinstated the default order and

judgment against Encompass.

Encompass appeals.

ANALYSIS

Encompass argues that the trial court erred by granting reconsideration

because it (1) inappropriately relied on newly discovered evidence to reach its

decision and (2) failed to recognize that the Pecks’ misconduct entitled

Encompass to relief under CR 60(b)(4). The Pecks dispute Encompass’

allegations and seek attorney fees on appeal.

We review a trial court’s order on reconsideration for abuse of discretion.

Rivers v. Wash. State Conf. of Mason Contractors, 145 Wn.2d 674, 685, 41 P.3d

1175 (2002). A trial court abuses its discretion when its decision is manifestly

unreasonable or based on untenable grounds or reasons. O’Neill v. City of

4 No. 85775-4-I (consol. with No. 85995-1-I)/5

Shoreline, 183 Wn. App. 15, 21, 332 P.3d 1099 (2014). A court rests its decision

on “untenable grounds” or bases it on “untenable reasons” if the court relies on

unsupported facts or applies the wrong legal standard. Mayer v. Sto Indus., Inc.,

156 Wn.2d 677, 684, 132 P.3d 115 (2006). The court’s decision is “manifestly

unreasonable” if, “despite applying the correct legal standard to the supported

facts,” the court “adopts a view ‘that no reasonable person would take.’ ” Id.4

(quoting State v. Rohrich, 149 Wn.2d 647, 654, 71 P.3d 638 (2003)).

1. Newly Discovered Evidence

Encompass argues that the trial court abused its discretion by granting the

Pecks’ motion for reconsideration because it based its decision on newly

discovered evidence. We disagree.

Under CR 59(a), a party can move for reconsideration of a trial court’s

order on several grounds. These grounds include when a party newly discovers

material evidence that “the party could not with reasonable diligence have

discovered and produced at the trial.” CR 59(a)(4). A court may grant

reconsideration based on newly discovered evidence if the evidence “(1) will

probably change the result of the trial; (2) was discovered since the trial; (3)

could not have been discovered before trial by the exercise of due diligence; (4)

is material; and (5) is not merely cumulative or impeaching.” State v. Evans, 45

Wn. App. 611, 613, 726 P.2d 1009 (1986).

4 Internal quotation marks omitted.

5 No. 85775-4-I (consol. with No. 85995-1-I)/6

Here, the Pecks attached several documents to their motion for

reconsideration. Those documents include a declaration from their trial counsel;

letters from Encompass to the Pecks dated December 18, 2020 and March 4,

May 13, June 10, and July 9, 2021; two March 2021 letters from Encompass’

attorney Douglas Foley; a copy of the Pecks’ attorney Ray Brooks’ phone bill

from May and June 2021; a certified mail receipt from the United States Postal

Service; a certificate of service from the OIC; Brooks’ request to the OIC to serve

Encompass; the summons and complaint; the superior court case scheduling

order; and the order granting Encompass’ motion to set aside the default order

and judgment. Of these documents, only Brooks’ phone record was not

previously before the court, which shows a 23-minute phone conversation

between Brooks and Foley on May 12, 2021.

Encompass argues that these documents do not amount to newly

discovered evidence under CR 59(a)(4) because they were available to the

Pecks before they responded to its motion to set aside the default orders.

Encompass is correct. But the Pecks did not move for reconsideration under CR

59(a)(4) or offer the documents as newly discovered evidence. And the trial

court did not grant their motion based on newly discovered evidence. Instead,

the Pecks argued that the trial court’s order setting aside the default order and

judgment was contrary to law and did not do substantial justice under CR

59(a)(7) and (9). And the trial court agreed.

6 No. 85775-4-I (consol. with No. 85995-1-I)/7

As much as the trial court may have reviewed the Pecks’ additional

evidence in reaching its decision under CR 59(a)(7) and (9), the court did not err.

In general, CR 59 does not prohibit the submission of new or additional evidence

on reconsideration. Martini v. Post, 178 Wn. App. 153, 162, 313 P.3d 473

(2013). Whether to consider such evidence is left to the discretion of the trial

court. Id. And Encompass does not show why the court’s decision to consider

the additional evidence was untenable.

In any event, even if the trial court erred by considering the extra

evidence, Encompass shows no prejudice. The information attached to the

Pecks’ motion for reconsideration was mostly cumulative of evidence already

before the court as part of Encompass’ motion to set aside the default orders.

And while Brooks’ phone bill was not originally before the court, it had no impact

on the court’s decision. The trial court granted the motion for reconsideration

because no evidence showed that Encompass discussed the Pecks’ lawsuit or

otherwise appeared in the case after the Pecks filed their complaint. The bill

showed only that Brooks and Foley discussed Rhonda’s claim on May 12, 2021,

a day earlier than the parties recalled. And the call occurred well before the

Pecks filed their complaint on May 21, 2021.

The trial court did not abuse its discretion by considering additional

evidence in granting the Pecks’ motion for reconsideration under CR 59(a)(7)

and (9).

7 No. 85775-4-I (consol. with No. 85995-1-I)/8

2. Misconduct Warranting Relief from Judgment

Encompass argues that the trial court abused its discretion by reinstating

the Pecks’ default judgment. It contends the Pecks obtained the judgment

through misconduct warranting relief under CR 60(b)(4). We disagree.

“For good cause shown and upon such terms as the court deems just, the

court may set aside an entry of default and, if a judgment by default has been

entered, may likewise set it aside in accordance with rule 60(b).” CR 55(c)(1).5

Under CR 60(b)(4), a trial court can vacate a judgment for “[f]raud, . . .

misrepresentation, or other misconduct of an adverse party.”6 The misconduct

“must cause the entry of the judgment such that the losing party was prevented

from fully and fairly presenting its case or defense.” Lindgren v. Lindgren, 58

Wn. App. 588, 596, 794 P.2d 526 (1990). And the party attacking a judgment

under CR 60(b)(4) “must establish the fraud, misrepresentation, or other

misconduct by clear and convincing evidence.” Id. We review a trial court’s

5 Encompass argues that under CR 55(c)(1), it need show only “good cause” for relief from the default judgment. But the plain language of CR 55(c)(1) shows that the “good cause” burden applies when seeking relief from only default orders. Here, Encompass seeks relief from a default judgment, so it must show it is entitled to relief under CR 60(b). 6 Encompass also argues that we should apply the White test in analyzing whether the court should have set aside the default judgment. See White v. Holm, 73 Wn.2d 348, 351-52, 438 P.2d 581 (1968). But courts use the White test to consider setting aside a default judgment under CR 60(b)(1), not CR 60(b)(4). Id.; compare CR 60(b)(1) (court may relieve a party from final judgment for “[m]istakes, inadvertence, surprise, excusable neglect or irregularity”), with CR 60(b)(4); see also VanderStoep v. Guthrie, 200 Wn. App. 507, 516-17, 402 P.3d 883 (2017) (“Whether a trial court should set aside a default judgment under CR 60(b)(1) depends upon application of [the] four- part test first articulated in White.”); Morin v. Burris, 160 Wn.2d 745, 757-58, 161 P.3d 956 (2007) (White requires a showing of mistake, surprise, or excusable neglect). So, White is not applicable here.

8 No. 85775-4-I (consol. with No. 85995-1-I)/9

decision on a motion to set aside a default judgment for abuse of discretion.

Little v. King, 160 Wn.2d 696, 702, 161 P.3d 345 (2007).

Encompass argues that it “substantially appeared” in the Pecks’ lawsuit

and that its substantial appearance entitled it to notice of the Pecks’ motion for

default. It alleges the Pecks engaged in misconduct when they failed to notify

Encompass of the motion, warranting relief under CR 60(b)(4).

Any party who has appeared in an action for any purpose “shall be served

with a written notice of motion for default and the supporting affidavit at least

[five] days before the hearing on the motion.” CR 55(a)(3). But any party who

has not appeared is not entitled to such notice. Id. Under RCW 4.28.210, a

party “appears” in a proceeding when it “gives . . . written notice of [its]

appearance.”

Still, even absent a written notice of appearance under RCW 4.28.210, a

party may substantially comply with the appearance requirements and be entitled

to notice under CR 55. See Morin v. Burris, 160 Wn.2d 745, 756, 161 P.3d 956

(2007) (“appearance in court to resist a motion to convert a temporary restraining

order into an injunctive was a general appearance entitling the defendant to

notice of the default judgment hearing”). But substantial compliance generally

requires a defendant take some formal or informal action after litigation begins,

“acknowledging that the dispute is in court.” Id. at 757.

In Morin, driver Morin submitted a claim to another driver’s insurance

company, Farmers, for compensation arising from a car collision. 160 Wn.2d at

750. Morin and the Farmers’ claim representative spoke twice about the claim,

9 No. 85775-4-I (consol. with No. 85995-1-I)/10

and Morin’s attorney engaged in unsuccessful negotiations to settle the claim.

Id. Morin then sued Farmers. Id. Farmers did not answer the lawsuit, so Morin

obtained a default judgment. Id. Farmers then moved to set aside the judgment,

arguing that it substantially appeared in the lawsuit by negotiating Morin’s claim,

and its substantial appearance entitled it to notice when Morin sought an order of

default. Id. at 751. Our Supreme Court disagreed and held that a party does not

substantially appear in a case when their only contact with the other party is

prelitigation. Id. at 757. Instead, a party must take some action after the plaintiff

files a case that acknowledges a dispute “is in court” before it has a right to

notice of a motion for default. Id.

This case is like Morin. Rhonda filed a UIM claim and engaged in

discussions with Encompass to resolve the claim. The discussions included the

exchange of emails and at least one telephone call between the Pecks’ and

Encompass’ attorneys. When Rhonda and Encompass could not resolve her

claim, the Pecks sued. After filing suit, the parties did not engage in any

conversation that acknowledged the dispute in court.

Encompass argues the parties did engage in conversations after the

Pecks filed their May 21, 2021 lawsuit. It points to the June 10 and July 9, 2021

letters it sent to the Pecks’ attorney, advising him that Rhonda’s “medical and or

wage investigation is continuing,” that Encompass would continue to update him

on the status of the claim, and that he could call with any questions or concerns.

But those form letters refer to the status of only Rhonda’s UIM claim; they do not

relate to the pending litigation and do not acknowledge the Pecks’ lawsuit. As a

10 No. 85775-4-I (consol. with No. 85995-1-I)/11

result, the letters did not give rise to a duty to inform Encompass about the

default motion.

Because Encompass fails to show that it substantially appeared in the

Pecks’ lawsuit, the Pecks did not engage in misconduct by not notifying it of the

default motion, and the trial court did not abuse its discretion when it denied

Encompass relief under CR 60(b)(4) on reconsideration.

3. Attorney Fees

The Pecks request attorney fees on appeal under RAP 18.1 and Olympic

Steamship Co. v. Centennial Insurance Co., 117 Wn.2d 37, 811 P.2d 673 (1991).

Under RAP 18.1(a), we may award attorney fees on appeal if “applicable

law grants to a party the right to recover reasonable attorney fees.” And under

Olympic Steamship, we award attorney fees to “[a]n insured who is compelled to

assume the burden of legal action to obtain the benefit of its insurance contract.”

117 Wn.2d at 54. But Olympic Steamship authorizes fees only when an insurer

denies coverage, not when the insurer denies or disputes the value of a claim.

Solnicka v. Safeco Ins. Co. of Ill., 93 Wn. App. 531, 533, 969 P.2d 124 (1999);

Dayton v. Farmers Ins. Grp., 124 Wn.2d 277, 280, 876 P.2d 896 (1994).

Here, Encompass did not dispute that Rhonda’s UIM policy entitled her to

coverage. Instead, it disputed the value of her claim. It argued that Rhonda’s

$50,000 settlement adequately compensated her for her injuries. As a result, we

deny the Pecks’ request for an award of attorney fees under Olympic Steamship.

11 No. 85775-4-I (consol. with No. 85995-1-I)/12

Because Encompass fails to show that the trial court abused its discretion

by granting the Pecks’ motion for reconsideration and reinstating their default

order and judgment, we affirm.

WE CONCUR: