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

MUTUAL OF ENUMCLAW                         )     No. 75633-8-1
INSURANCE COMPANY,                         )
                                           )
       Appellant/Cross Respondent,         )
                                           )
           v.                              )
                                           )
MYONG SUK DAY,                             )    ORDER DENYING DAY'S MOTION,
                                           )    FOR RECONSIDERATION, GRANTING
                                           )    MOE'S MOTION FOR RECONSIDERATION
       Respondent/Cross Appellant.         )    IN PART, AND WITHDRAWING AND
                                           )    REPLACING OPINION

       Appellant and respondent have each filed motions for reconsideration of the

court's December 12, 2016 opinion and each have filed answers. The panel has

considered the motions and answers and determined that Day's motion should be

denied, that MOE's motion should be granted in part, and the opinion should be

amended as follows:

       Page 2, last paragraph, delete the phrase "and attorney fees awarded by the trial

court" at the end of the first sentence.

       Page 6, delete the last sentence in the second paragraph and replace it with

"The trial court authorized the entry of a supplemental judgment for attorney fees to

Day, but no supplemental judgment has been entered."

       Page 17, delete the last sentence in the first paragraph.

       Page 17, delete the word "also" in the second paragraph.
No. 75633-8-1/2


      Page 17, change the first sentence of the second paragraph to read "We affirm

the judgment in favor of Day for $300,000 for emotional distress damages and the

$600,000 of multiplied damages under IFCA awarded by the court." Add a footnote at

the end of that sentence which reads, "On reconsideration in this court, the parties

debate whether a supplemental judgment may yet be entered for Day's attorney fees in

the trial court. Because this question was not meaningfully addressed in the parties'

briefs, we express no opinion."

      Now therefore, it is hereby

       ORDERED that Day's motion for reconsideration is denied. It is further

       ORDERED that MOE's motion for reconsideration is granted in part and changes

are made to the opinion as outlined above. It is further
                                                                                   c=         Ct
                                                                                           ;71
       ORDERED that the December 12, 2016 opinion be withdrawn and replacedwit

a revised opinion reflecting the changes herein.                                   crk
                                                                                           Cf)
      Done this   6     day of January 2017.
                                                                                   LO            (J)
                                                                                                 cb3
                                                                                   IN)           —
                                                                                   1/4ZI




                                                            ‘7„




                                            2
     IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
                         DIVISION ONE

MUTUAL OF ENUMCLAW                         )       No. 75633-8-1
INSURANCE COMPANY,                         )
                                           )
       Appellant/Cross Respondent,         )
                                           )
           v.                              )
                                           )
MYONG SUK DAY,                             )      PUBLISHED OPINION                       • el


                                           )
       Respondent/Cross Appellant.         )      FILED: February 6, 2017                        <
                                           )

       VERELLEN, C.J. — Instead of a more traditional covenant judgment, Myong Suk

Day gave agreed judgments to tort victims William Lee and Dawn Smith but retained

her claims against her insurer, Mutual of Enumclaw (MOE). Day assigned only her

claims against an independent agent. Lee and Smith agreed not to execute against any

of Day's assets except her claims against the agent. Lee and Smith also agreed to fully

satisfy their agreed judgments against Day once the assigned claim against the agent

was resolved.

       In a more traditional covenant judgment, the insured gives the tort victim an

agreed judgment and assigns her claims against her own insurer in exchange for the

tort victim's covenant not to execute on any asset of the insured except the insured's

claims against her insurer. If the insurer has engaged in bad faith while defending the

tort victim's personal injury claim under a reservation of rights, then the tort victim
No. 75633-8-1/2

pursuing the assigned bad faith claim against the insurer is entitled to a rebuttable

presumption of harm and coverage by estoppel. If the settlement is reasonable, then

the amount of the agreed judgment is the tort victim's presumptive recovery on the

assigned bad faith claim. The covenant judgment is not a release of the tort victim's

claims against the insured. But if the insured is legally insulated from any exposure to

the tort victim, then the presumption of harm is rebutted, precluding any coverage by

estoppel.

       Here, the trial court concluded that a presumption of harm supported coverage

by estoppel, resulting in a judgment for Day against MOE in the amount of the tort

victims' agreed judgments against Day.

       Because Day's right to full satisfaction of the agreed judgments is unrelated to

the resolution of any claims (retained or assigned) against Day's insurer, Day is legally

insulated from any exposure on the agreed judgments. Even assuming a presumption

of harm applies, the presumption would be rebutted by Day's absolute right to a full

satisfaction of the agreed judgments. There is no coverage by estoppel. We reverse

the judgment in favor of Day based on coverage by estoppel.

       We also affirm the trial court's denial of Day's claim to reform the insurance

contract.

       We affirm the judgment in favor of Day for the $300,000 emotional distress

damages awarded by the jury, together with the IFCA1 multiplier. We also award Day

her reasonable attorney fees on appeal on the issues she has prevailed upon.




      I Insurance Fair Conduct Act, ch. 48.30 RCW.


                                             2
No. 75633-8-1/3

                                           FACTS

       In May 2008, a teenager purchased alcohol at Day's grocery store and shared it

with his underage friends. The teenagers raced through Point Defiance Park and

injured two pedestrians, William Lee and Dawn Smith, who sued Day in 2009.

       Day contacted her independent insurance agent, Michael Huh. Day met Huh

when she purchased the grocery store in 2003. Although Day and Huh have different

versions of their November 2003 meeting and whether Day asked for liquor liability

coverage, it is undisputed that the insurance contract did not provide for liquor liability

coverage. Subsequent automatic annual policy renewals occurred without any

coverage review. All renewed policies lacked liquor liability coverage.

       Day claims Huh told her she had insurance that covered the lawsuit and that she

should contact her insurer, MOE. Huh tendered the claim to MOE for Day. MOE

instructed Day "to contact her personal attorney."2 The MOE claims adjustor had no

explanation why MOE did not interview Day about the coverage issue or ask Day what

she had discussed with Huh or why she thought she had liquor liability coverage. MOE

did not tell Day that Huh claimed she had declined liquor liability coverage.

       MOE notified Day that it would appoint an attorney to defend her, but because

she did not have liquor liability coverage in her contract, MOE would defend under a

reservation of rights. MOE also informed Day that it might bring a declaratory judgment

action to determine its obligations under the policy.3



       2   Report of Proceedings (RP) (Nov. 19, 2014) at 88.
       3 See Clerk's Papers (CP) at 144 ("This reservation of rights includes the right to
file an action for declaratory relief in a Washington court seeking a determination of
Mutual of Enumclaw's obligations under the policy with respect to plaintiffs' claims.")


                                              3
No. 75633-8-1/4

       MOE filed a declaratory judgment action (the coverage case) to determine its

obligation to defend or indemnify Day for Lee and Smith's personal injury claims. In her

answer, Day sought reformation of the contract to include liquor liability coverage or to

otherwise provide Day coverage.

       Day amended her answer to allege bad faith, CPA4 and IFCA violations, and

coverage by estoppe1.5 The amended answer also added Huh as a third-party

defendant.

       The parties in the personal injury lawsuit reached a settlement in June 2011.

MOE paid Lee and Smith $125,000 on Day's behalf. Day agreed to entry of judgments

for Lee and Smith against Day totaling $7,986,222. Lee and Smith agreed not to

execute on the agreed judgments, except as to Day's claims against Huh. Day

assigned Lee and Smith all rights, privileges, claims, and causes of action that she may

have against Huh, but retained her claims against MOE. The 2011 settlement included

an obligation to fully satisfy the judgments against Day once the claims against Huh

were concluded:

              In consideration for the assignment and cooperation as described
      herein, Plaintiffs do hereby covenant not to execute or attempt to enforce
      any judgment obtained against any assets of Day other than Day's rights,
      privileges, claims, and causes of action assigned. Plaintiffs' sole remedy
      is to pursue the assigned claims against others. As soon as the assigned
      claims have concluded (whether by settlement, final judgment, or
      exhaustion of all appeals and the time for further action has expired), Day
      may enter a full satisfaction of judgment signed by Plaintiffs in favor of
      Day, which full satisfaction shall be signed by Plaintiffs when this


      4   Consumer Protection Act, ch. 19.86 RCW.
       5 See CP at 198 ("MOE failed to advise Day of all developments relevant to
coverage, failed to advise her of all developments relevant to her defense, failed to
properly handle settlement of the claims against Day, and failed to ascertain the best
terms on which the claims against her could be settled.").


                                            4
No. 75633-8-1/5

      settlement is executed. The full satisfaction is to be entered regardless of
      the amount of any judgment awarded or settlement accepted and
      regardless whether the result is less than the judgment agreed in this
      settlement.[8]

The agreement also contemplated a hearing to determine the reasonableness of the

settlement.

      The trial court dismissed the personal injury lawsuit with prejudice as "fully settled

and compromised" including all claims against Day.7 But the agreed judgments were

not entered, there was no reasonableness hearing, and the plaintiffs did not sign and

deliver a satisfaction of the agreed judgments to be filed when claims against Huh were

resolved.

      Lee and Smith, as assignees of Day, later reached a settlement with Huh in the

coverage lawsuit. Huh paid Lee and Smith $600,000, and the court dismissed all claims

against Huh with prejudice.

      Almost a year later, the trial court granted an agreed motion in the personal injury

action to reopen "for the limited purpose of permitting the Court to conduct a hearing to

determine the reasonableness of the Stipulated Settlements and Judgment amounts in

favor of Plaintiffs, William R. Lee and Dawn Smith, against [Day], as was agreed in the

Stipulated Settlement among Plaintiffs Lee and Smith and Defendant Day."8 The trial

court also consolidated the personal injury action with the coverage case. The trial

court entered an order on June 27, 2014 finding the settlement reasonable and entered

the agreed judgments in favor of Lewis and Smith against Day.



       6   CP at 305.
       7   CP at 622-24.
       8   CP at 704 (emphasis omitted).


                                            5
No. 75633-8-1/6

       The remaining claims in the coverage case were scheduled for trial. Before trial,

the court ruled the jury would determine whether MOE breached its duty of good faith

and would assess any damages for Day's emotional distress; the trial judge would

decide whether to impose the remedy of coverage by estoppel and whether to reform

the insurance contract.

       The jury found that MOE's bad faith caused Day emotional distress damages in

the amount of $300,000. Based on the IFCA multiplier, the trial court awarded Day an

additional $600,000 in darnages. The trial court authorized the entry of a supplemental

judgment for attorney fees to Day, but no supplemental judgment has been entered.

       The trial court denied Day's claim to reform the insurance contract,9 but applied

coverage by estoppel to award Day a judgment against MOE in the amount of the

agreed judgments for Lee and Smith, with interest, totaling $10,460,366.14.

       MOE appeals. Day cross appeals.

                                         ANALYSIS

                   I. Presumption of Harm and Coverage by Estoppel

       MOE argues Day was not entitled to a presumption of harm and coverage by

estoppel. For the reasons set forth below, we conclude that even if a presumption of

harm applies here, such presumption is rebutted because of the settlement provision to



         9 The trial court concluded: "In this case, considering all of the evidence admitted
at trial, and in light of the parties extensive briefing on the subject, this Court is
persuaded that Ms. Day probably did, at least indirectly, request liquor liability coverage
by asking Mr. Huh to write the same policy for her as he had done for Mr. Kim.
However, when applying the higher clear, cogent and convincing standard of proof, the
Court does not believe the evidence supports reformation. In particular, there is not
clear, cogent and convincing evidence of a clear mutual mistake in coverage terms, as
opposed to a unilateral mistake on the part of Ms. Day, or potentially no mistake at all if
Mr. Huh's version of events is accepted." CP at 2381 (Conclusion of Law 7).


                                              6
No. 75633-8-1/7

fully satisfy the agreed judgments once the claims against Huh were resolved in any

manner. We need not define the exact limits for the presumption of harm and coverage

by estoppel in bad faith cases.

       An insurer has an "enhanced obligation of fairness toward its insured."10 That

enhanced obligation imposes a duty beyond that of the standard contractual duty of

good faith.11 Tank v. State Farm Fire & Casualty Co. recognized the two forms of bad

faith at issue here: "the company must thoroughly investigate the cause of the insured's

accident and the nature and severity of the plaintiffs injuries," and "the company has the

responsibility for fully informing the insured not only of the reservation of rights defense

itself, but of all developments relevant to his policy coverage and the progress of his

lawsuit."12

       In a more traditional covenant judgment, the tort victim takes an agreed judgment

against the insured in exchange for a covenant by the tort victim not to execute on any

of the insured's assets except the insured's claims against its own insurer, and the

insured assigns those claims to the tort victim.13 Such covenant judgments do not

release the insured from liability; rather, they limit recovery to "a specific asset—the

proceeds of the insurance policy and the rights owed by the insurer to the insured.'"14



       10 Safeco Ins. Co. of Am. v. Butler, 118 Wn.2d 383, 393, 823 P.2d 499 (1992)
(quoting Tank v. State Farm Fire & Cas. Co., 105 Wn.2d 381, 383-85, 715 P.2d 1133
(1986)).
       11 Tank,   105 Wn.2d at 387.
       12   105 Wn.2d 381, 387, 715 P.2d 1133 (1986) (emphasis omitted).
      13 Unigard Ins. Co. v. Mut. of Enumclaw Ins. Co., 160 Wn. App. 912, 919, 250
P.3d 121 (2011).
       14Besel v. Viking Ins. Co. of Wis., 146 Wn.2d 730, 737, 49 P.3d 887 (2002)
(quoting Butler, 118 Wn.2d at 399).


                                              7
No. 75633-8-1/8


       Several cases hold that if the insurer has engaged in bad faith while defending

the tort victim's personal injury claim under a reservation of rights, then the tort victim

pursuing the assigned bad faith claim against the insurer is entitled to a presumption of

harm and coverage by estoppel.

       In Safeco Insurance Co. of America v. Butler, our Supreme Court emphasized

that harm is an essential element of an action for an insurer's bad faith handling of a

claim under a reservation of rights.15 In order to relieve an insured of the "almost

impossible burden" of proving he or she is demonstrably worse off because of the

insurer's bad faith, a rebuttable presumption of harm arises once the insured

establishes bad faith.16 Although requiring the insurer to prove the absence of harm is

also an "almost impossible burden," the insurer controls whether it acts in good faith;

therefore, courts presume harm from an act of bad faith.17 "[T]he insurer can rebut the

presumption by showing by a preponderance of the evidence its acts did not harm or

prejudice the insured."15 If the insurer does not rebut the presumption, the insured is

entitled to coverage by estoppe1.19 And if the settlement has been determined to be

reasonable, then the amount of the agreed judgment is the presumptive recovery for the

tort victim on the assigned bad faith claim.20


       15   118 Wn.2d 383, 823 P.2d 499 (1992).
       16   Id. at 390.
       17Miller v. Kenny, 180 Wn. App. 772, 798-99, 325 P.3d 278 (2014); Mut. of
Enumclaw Ins. Co. v. Dan Paulson Constr., Inc., 161 Wn.2d 903, 920, 169 P.3d 1
(2007); Butler, 118 Wn.2d at 390-91.
       18   Butler, 118 Wn.2d at 394.
       19   Id. at 393.
      20 See, e.g., Miller, 180 Wn. App. at 800-01; Dan Paulson Constr., 161 Wn.2d at
924-25.


                                              8
No. 75633-8-1/9

       In Coventry Associates v. American States Insurance Co., our Supreme Court

held the presumption of harm does not extend to bad faith in first-party coverage

settings.21 The court reasoned that, unlike third-party coverage claims defended under

a reservation of rights, there is no potential conflict of interest in first-party scenarios.22

       Ten years later, in St. Paul Fire and Marine Insurance Co. v. Onvia, Inc., our

Supreme Court extended Coventry to a third-party coverage setting where an insurer

did not defend under a reservation of rights and bad faith consisted solely of "procedural

missteps."23 Reading Onvia broadly, MOE argues that its failure to promptly investigate

Day's claim for reformation and promptly communicate with her about that investigation

"[did] not trigger the policy concerns that have led courts to apply" coverage by

estoppe1.24 But Onvia rejected a presumption of harm and coverage by estoppel

because, as in Coventry, neither a failure to defend nor a defense under a reservation

of rights was at issue.25 The policy concerns the court referred to in Onvia were those

that attach when an insurer fails to defend or defends under a reservation of rights,26 as




       21 136   Wn.2d 269, 281, 961 P.2d 933 (1998).
       22  Id. at 277 ("This issue is one of first impression in the context of a first party
action. In the context of a third-party reservation of rights case, once an insured meets
the burden of establishing an insurer's bad faith, a rebuttable presumption of harm
arises.").
       23 165 Wn.2d 122, 126 & 133, 196 P.3d 664 (2008) ("[N]o rebuttable presumption
of harm can arise here, and the measure of damages offered in Coventry should apply
here also. The remedy of coverage by estoppel is not recognized in this context.").
       24   Appellant's Br. at 14.
       25   Onvia, 165 Wn.2d at 133.
       26  Id. ("As in Coventry, a reservation of rights or failure to defend in any capacity
is not at issue. Therefore, no rebuttable presumption of harm can arise here, and the
measure of damages offered in Coventry should apply here also. The remedy of
coverage by estoppel is not recognized in this context.").


                                                9
No. 75633-8-1/10

announced in Butler27 and acknowledged in Coventry.28 Onvia did not eliminate the

presumption of harm and coverage by estoppel for bad faith claims alleging a failure to

investigate. Onvia merely acknowledged that the presumption and coverage by

estoppel were not appropriate when the insurer did not fail to defend nor defend under a

reservation of rights.29

       Against this backdrop, we analyze the atypical "covenant judgment" used here.

Smith and Lee took agreed judgments of more than $10,000,000 against Day, but

unlike a traditional covenant judgment, Day retained her claims against her insurer and

assigned only her claim against Huh. The covenant precluded any execution on the

agreed judgments except on Day's claims against Huh. And, most importantly, the

settlement giving rise to the agreed judgments expressly provided that once the claims

against Huh were resolved in any manner, the agreed judgments against Day would be

fully satisfied.

        Werlinger v. Clarendon National Insurance Co. is instructive.30 Michael Warner

caused a car collision that killed Dean Werlinger. Warner was protected from personal


        27 Butler, 118 Wn.2d at 392 ("In Tank we did not address what remedy is
available for an insurer's bad faith handling of a claim under a reservation of rights. We
now hold that where an insurer acts in bad faith in handling a claim under a reservation
of rights, the insurer is estopped from denying coverage.").
       28 Coventry, 136 Wn.2d at 281 ("Because the potential conflict of interest does
not exist in the first-party context, we do not think a rebuttable presumption of harm is
warranted.").
        29Onvia, 165 Wn.2d at 133. Day points to Moratti v Farmers Insurance Co. of
Washington, 162 Wn. App. 495, 254 P.3d 939 (2011) for the proposition that Butler
applies whenever an insurer acts in bad faith, including a failure to investigate. But the
significance of Moratti here is limited because, unlike Day's settlement with the tort
victims, Moratti involved a traditional covenant judgment where the insured assigned its
claims against its insurer to the tort victim.
        39   129 Wn. App. 804, 120 P.3d 593 (2005).


                                            10
No. 75633-8-1/11


liability due to a discharge in bankruptcy, but the bankruptcy court allowed the Werlinger

estate to sue Warner for the $25,000 limits of his automobile insurance policy with

Clarendon National Insurance Company.31 Clarendon defended under a reservation of

rights.32 In exchange for Warner settling for $5,000,000, the Werlingers agreed not to

hold Warner personally liable.33 Warner assigned the Werlingers their bad faith claims

against Clarendon. The Werlingers, as Warner's assignees, filed a bad faith lawsuit

against Clarendon, and on motions for summary judgment, the court ruled in favor of

Clarendon because "there was no injury to Mike Warner or his marital community."34

On appeal, this court recognized that the discharge in bankruptcy insulated Warner from

any personal liability, rebutting the presumption of harm:

       Werlingers argue that there is a presumption of harm once an insured
       establishes that the insurer acted in bad faith. Although this is true, the
       presumption of harm is rebuttable. Clarendon established that there was
       no harm.[35]

       Day attempts to distinguish Werlinqer because, unlike here, the insured in

Werlinqer had filed for bankruptcy before the auto collision and was insulated from

liability before the claim had been tendered to the insurer. But that distinction is not

compelling. Day's insulation from liability is equivalent to the insured's bankruptcy in

Werlinger. When the judgments were entered against Day in 2014, the claim against

Huh had been resolved. Under the 2011 settlement agreement, Day was entitled to a

full satisfaction of those judgments.


       31 Id.

       32 Id. at 807.
       33 id .

       34   Id. at 807-08.
       35   Id. at 809-10.


                                             11
No. 75633-8-1/12

      Day also argues that this is just another variation on lack of harm arguments

rejected in covenant judgment decisions for decades. But unlike the rights created in a

traditional covenant judgment, Day's right to full satisfaction of the agreed judgment is

unrelated to the resolution of any claims (retained or assigned) against Day's insurer.

As a consequence, Day was legally insulated from any exposure based on the agreed

judgments.

       Other issues are presented, but even assuming that a presumption of harm

applies here, such a presumption is rebutted, precluding any application of coverage by

estoppe1.36 We reverse the $10,460,366.14 judgment in favor of Day against MOE

based on coverage by estoppel.

       Because we reverse the judgment based on coverage by estoppel, we need not

address MOE's additional arguments related to coverage by estoppel.

                                   II. Jury Instructions

       The coverage trial addressed whether MOE engaged in bad faith by failing to

adequately investigate Day's claim and by failing to keep Day advised about that

claim.37 MOE challenges the trial court's refusal to give its proposed instructions on the

legal standards related to policy reformation.




       36 No reported Washington decision has applied the presumption of harm and
coverage by estoppel to award the amount of an agreed judgment between the insured
and the tort victim to an insured as damages for a bad faith claim retained by the
insured. Because any presumption of harm is rebutted, we need not address that
question.
       37 Even without a presumption of harm and coverage by estoppel, an insured is
entitled to those damages personal to the insured that resulted from the insurer's bad
faith, such as emotional distress damages. Miller, 180 VVn. App. at 787-88.


                                            12
No. 75633-8-1/13

       It appears MOE's challenge is limited to four proposed instructions.38 Two recite

legal standards governing an agent's authority to issue a binder for insurance and the

expiration of a binder.39 One states a written agreement is required to modify the terms

of a policy.49 The last one is based on a Kansas case which provides there is no duty to

investigate a claim that a policy should mean something other than its written terms.41

       Jury instructions are sufficient when they allow parties to argue their theory of the

case, are not misleading, and when taken as a whole, inform the jury of the applicable

law.42 We review the trial court's decision whether to give a particular jury instruction for

an abuse of discretion.43 If the trial court's jury instructions are otherwise sufficient, the

court does not need to give a party's proposed instruction, though that instruction may

be an accurate statement of the law.44 The trial court may decide which instructions are

necessary to "guard against misleading the jury."48

       MOE focuses on Day's expert testimony regarding when coverage extends

beyond a written policy, when an agent has "binding authority," and whether MOE

should have reformed the contract to conclude the claim was covered.48



       38 MOE did not take formal exception to the refusal to give instructions and did
not identify specific proposed instructions in its assignments of error. RAP 10.3(g).
       38   See CP at 1715 & 1731.
       49   See CP at 1716.
       41 SeeCP at 1719 (citing Jones v. Reliable Sec. Incorporation, Inc., 29 Kan. App.
2d 617, 28 P.3d 1051 (2001)).
       42   City of Bellevue v. Raum, 171 Wn. App. 124, 142, 286 P.3d 695 (2012).
       43   Clark County v. McManus, 185 Wn.2d 466, 470, 372 P.3d 764 (2016).
       44   City of Seattle v. Pearson, 192 Wn. App. 802, 821, 369 P.3d 194 (2016).
       48   Gammon v. Clark Equip. Co., 104 Wn.2d 613, 617, 707 P.2d 685 (1985).
       48   Appellant's Br. at 46.


                                              13
No. 75633-8-1/14

       When arguing the instructions, the parties presented very different versions of

the issues before the jury. For example, Day's counsel argued, "We're not trying

reformation to the jury. . . . so it would be completely misleading to give them an

instruction on reformation that they're not deciding."47 MOE's counsel asserted that

reformation is "the basis of the bad faith claim."48 The court concluded, "I see the case

as being a tort claim related to bad faith, not a contract claim related to reformation,"

and noted the reformation of the contract was a theory reserved to the trial court.48

       We agree that the issue whether to reform the contract was reserved to the trial

court. It was within the discretion of the trial court to conclude the jury may be misled or

confused by instructions focusing on the legal standards governing binders, limits on

modifying insurance policies, and no duty to investigate any claim that the policy means

something other than its written terms. To the extent MOE suggests a theory that there

was no bad faith failure to investigate or advise because, as a matter of law, there could

be no reformation of the contract, that was not an issue for the jury.

       MOE's arguments are not persuasive. The trial court adequately instructed the

jury on the requirements for a showing of bad faith and the elements Day was required

to prove to establish bad faith. The trial court focused on the instructions necessary to

argue the theories presented.8° MOE does not establish that the court's instructions

were inadequate or that the trial court abused its discretion.



       47   RP (Dec. 3, 2014) at 14.
       48   Id. at 16.
       49   Id. at 16-18.
       80 For example, regarding the proposed instruction based on a Kansas case, the
court stated, "I'm not willing to add to our growing body of law by importing Kansas law
when I believe that the instructions already provide you with an opportunity to argue

                                             14
No. 75633-8-1/15


       We affirm the jury award of emotional distress damages resulting from MOE's

bad faith.

                              III. IFCA Treble Damage Award

       For the first time on appeal, MOE argues that emotional distress damages are

not "actual damages" subject to trebling under IFCA.51 "Failure to raise an issue before

the trial court generally precludes a party from raising it on appeal. . . . The reason for

this rule is to afford the trial court an opportunity to correct any error, thereby avoiding

unnecessary appeals and retrials."52 Because this issue was not preserved for appeal,

we decline to address it.53

                                  III. Contract Reformation

        On cross appeal, Day challenges the denial of her claim to reform the insurance

 contract. She argues the trial court erred as a matter of law and should have inquired

 "whether clear and convincing evidence of inequitable conduct by the insurer deprived

 the insured of the full benefits of the policy to which she believed she was entitled."54

       Mutual mistake supporting reformation of a contract must be proved by clear,

cogent and convincing evidence, "and if doubts exist as the parties' intent, reformation



that: 'We did our investigation. We found that the policy as written was excluding liquor
liability coverage. Mr. Huh said it was specifically excluded.' You can make your case
without this instruction." RP (Dec. 3, 2014) at 62.
       51 MOE   acknowledges it did not raise this argument to the trial court, but asks
this court to reach this issue because Schreib v. Am. Family Mut. Ins. Co., 129 F. Supp.
3d 1129 (W.D. Wash. 2015) had not been decided when judgment was entered.
However, the Washington authority the court relied on in Schreib was in existence when
MOE brought its motion opposing the treble damage award.
       52   Smith v. Shannon, 100 Wn.2d 26, 37, 666 P.2d 351 (1983).
       53   RAP 2.5(a).
       54   Respondent's Br. at 48 (emphasis added).


                                             15
No. 75633-8-1/16

is not appropriate."55 "Reformation is an equitable remedy employed to bring a writing

that is materially at variance with the parties' agreement into conformity with that

agreement."56 In matters of equity, the trial court has broad discretionary power to

fashion an equitable remedy.57

       Here, the trial court reserved the equitable remedy of contract reformation for the

court, not the jury. The parties presented conflicting testimony about Day's intent or

desire to purchase liquor liability coverage. The trial court's decision that Day failed to

meet the burden of clear, cogent, and convincing evidence was largely a credibility

determination.

       Our review of the record does not reveal that Day offered a separate theory of

reformation based on "inequitable conduct." We decline to consider this theory raised

for the first time on appeal.

       We conclude the trial court did not commit an error of law, rely on insufficient

evidence, or abuse its discretion when it concluded that Day had not met her burden of

clear, cogent, and convincing evidence.




        Denny's Rests., Inc. v. Security Union Title Ins. Co., 71 Wn. App. 194, 212,
       55
859 P.2d 619 (1993).
        Denaxas v. Sandstone Court of Bellevue, LLC, 148 Wn.2d 654, 669, 63 P.3d
       56
125 (2003).
       57   Arzola v. Name Intelligence, Inc., 188 Wn. App. 588, 596, 355 P.3d 286
(2015).


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No. 75633-8-1/17

                                    IV. Attorney Fees

       IFCA authorizes an award of "reasonable attorneys' fees and actual and statutory

litigation costs" to the prevailing insured.58 We award Day her reasonable attorney fees

on appeal on the issues she prevailed upon.

                                      CONCLUSION

       We affirm the judgment in favor of Day for $300,000 for emotional distress

damages and the $600,000 of multiplied damages under IFCA awarded by the trial

court.59

       We affirm the trial court's denial of Day's claim for contract reformation.

       We reverse the judgment in favor of Day against MOE based on coverage by

estoppel.

       Finally, we award Day her reasonable attorney fees on appeal on the issues she

prevailed upon.




WE CONCUR:




  461.
      55 RCW 48.30.015(2), (3); Trinity Universal Ins. Co. of Kan. v. Ohio Cas. Ins. Co.,
176 Wn. App. 185, 201, 312 P.3d 976 (2013); Olympic Steamship Co., Inc. v.
Centennial Ins. Co. 117 Wn.2d 37, 52-53, 811 P.2d 673 (1991).
       59 On reconsideration in this court, the parties debate whether a supplemental
judgment may yet be entered for Day's attorney fees in the trial court. Because this
question was not meaningfully addressed in the parties' briefs, we express no opinion.


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