Grp. Health Coop. v. Coon

This opinion was
IN CLEMCt OFPiet filed for record
EUHgg COUNT.awreermgiBwroM at ^on
I datb 2 2I
Susan L. Carlson
GMIEPMSTIGE Supreme Court Clerk

IN THE SUPREME COURT OF THE STATE OF WASHINGTON

GROUP HEALTH COOPERATIVE,a
Washington nonprofit corporation,

Petitioner, NO. 96516-1

V.

EN BANC
NATHANIEL COON and LORI COON,
husband and wife.
Filed AUG 2 2 2019
Respondents.

STEPHENS, J.—Group Health Cooperative (GHO) provided health

insurance benefits to Nathaniel(Joel) Coon, who suffered a serious fungal infection

and amputation following knee surgery at the Everett Clinic (TEC). The Coon

family later settled potential negligence claims against TEC,and GHO initiated this

lawsuit seeking reimbursement of its payments fi"om the settlement proceeds. We

must decide if genuine issues of material fact preclude summary judgment in favor

of GHO regarding whether the settlement constituted full compensation to Coon,
Group Health Cooperative v. Coon, 96516-1

and whether GHO suffered prejudice from the Coons' failure to provide notice prior

to finalizing the settlement. For the reasons explained below, we hold that summary

judgment is inappropriate. We affirm the Court of Appeals and remand for further

proceedings consistent with this opinion.

FACTS AND PROCEDURAL fflSTORY

Coon lives in Snohomish, Washington, with his wife and two teenage

daughters. In his early 20s, Coon started a residential lawn-care business that has

seen steady growth over the years, even during a recession, and now includes an

extensive commercial landscaping component. In addition to being heavily involved

in the day-to-day operations of the business, Coon and his family have enjoyed a

very active lifestyle with hobbies that include traveling, boating, fishing, and

hunting. The Coon family's lives changed dramatically in 2012 after Coon

developed a rare fungal infection that ultimately led to an above-knee amputation of

his right leg.

Initial Injury and Infection

In January 2012, Coon heard a "pop" in his right knee while playing tug-of-

war on ice; he experienced immediate pain and disability. Clerk's Papers (CP) at

153. Coon's initial surgery was performed on March 1, 2012 at TEC's Kemp

-2-
Group Health Cooperative v. Coon, 96516-1

Surgery Center; Coon tolerated the procedure well and was sent home the same day.

Id. at 153-54.

Coon's recovery seemed normal until March 19, when he returned to TEC

complaining ofworsening pain and fever. Lab tests revealed an elevated white blood

cell count, although an aspiration^ of Coon's knee showed no organisms on the

gram's stain. The next day. Coon was admitted to Providence Regional Medical

Center for further evaluation and initiation of antibiotic treatment. On March 26,

the fungus Scedosporium prolificans(SP)was isolated from the knee aspiration fluid

collected on March 19. SP, a fungus typically found in soil and polluted waters, is

extremely rare, aggressive, and resistant to most known and United States Food and

Drug Administration-approved antifungal agents.

After other cultures grew out of the SP, Coon began the difficult process of

antifungal therapy. The University of Washington Medical Center (UWMC)

analyzed the pathology of Coon's SP infection and confirmed resistance to

antifungal agents. Throughout the month of April, physicians "contacted the

[Centers for Disease Control], researched the literature, tried multiple antifimgal

agents, and consulted with nationally recognized [infectious disease] experts." Id.

^ Joint aspiration is a procedure to remove fluid from the space around a joint for
diagnostic purposes. Joint Aspiration, JOHNS HOPKINS Med., https://www.
hopkinsmedicine.org/health/treatment-tests-and-therapies/ioint-aspiration [https://perma.
CC/PJQ4-MM65].

-3-
Group Health Cooperative v. Coon, 96516-1

at 155. During these treatment regimens, Coon suffered severe nausea, vomiting,

visual and auditory changes, and hallucinations, and developed Stevens-Johnson

syndrome.^ Id. By the beginning of May it was clear that all attempted measures

had failed to control the infection.

As his condition severely worsened. Coon consulted with orthopedic surgeons

from the UWMC Department of Orthopedics, TEC, and Swedish Medical Center.

All advised that they were unfamiliar with this type of aggressive fungal infection

and lacked the requisite expertise to provide any new treatment plans. Id. at 155-56.

As a result. Coon was referred to the Mayo Clinic for treatment. Id. at 156. From

August to October, Coon was seen at the Mayo Clinic by leading orthopedic

surgeons and infectious disease physicians. They attempted a combination of

aggressive surgical procedures and antiflmgal therapies with no success. Eventually,

Coon's leg had to be amputated due to extreme pain and limited function. The

amputation was performed at the Mayo Clinic on October 17, 2012.

After the amputation. Coon returned to Washington for rehabilitation,

prosthesis fitting, and physical therapy. M at 157. At the initiation ofthis litigation.

Coon was still suffering from "ongoing phantom pain, stump pain, socket pain, low

^ "Stevens Johnson syndrome is a rare, serious, sometimes fatal disorder in whieh a
person's skin and mueous membranes react severely to a medication or infection. It often
begins with flu-like symptoms,followed by a painful red or purplish rash that spreads and
blisters, eventually causing the top layer of the skin to die and shed." CP at 155 n.5.

-4-
Group Health Cooperative v. Coon, 96516-1

back and hip pain,trouble sleeping,and poor fit ofhis prosthesis with multiple falls."

Id. In addition to the physical effects of the amputation. Coon has been severely

limited in his ability to manage his business, and he struggles to return to the active

lifestyle he enjoyed with his family.

Litigation and Settlement

During the period oftreatment and recovery, TEC worked cooperatively with

the Coons and paid a total of$322,645 for uncompensated medical expenses,travel,

and accommodations. Id. at 160. The Coons retained counsel to investigate any

possible legal claims. Id. at 353.

Counsel for the Coon family went to great lengths to determine the source of

the fungal infection, consulting with various experts. One theory, which evolved

after discussions with an expert at the Mayo Clinic, was that the spores were

potentially tracked into the operating room by a provider and then somehow

managed to settle onto the graft tissue prior to insertion. Id. at 145. Another expert

called into question the operation of the positive pressure ventilation system in the

operating room, hypothesizing that the SP spores could have been transmitted from

construction sites near the clinic. Id. at 146. After examining infection prevention

standards at TEC, the history of fungal infections at TEC, and the presence of any

permitted or unpermitted construction work during the procedure, the source ofthe

-5-
Group Health Cooperative v. Coon, 96516-1

SP fungal spores has yet to be determined. TEC rejects the above potential theories

of liability and maintains that Coon was the likely carrier ofthe SP spores due to his

"occupation as a landscaper." Id. at 159. Without extensive discovery to pinpoint

an exacttheory ofcausation, counsel concluded that the Coons had a res ipsa loquitur

case. Id. at 145.

In addition to investigating potential theories of liability, counsel notified

GHO in December 2013 that the Coons were being represented in connection with

the injury and amputation. At that time, counsel requested a breakdown of GHO's

subrogation lien for benefits provided to Coon. GHO responded that it had provided

medical coverage in the amount of $372,634, in accordance with GHO's individual

and family plan 2012 medical coverage agreement. Id. at 390-91. GHO asked

counsel to [p]lease keep us informed regarding settlement negotiations and contact

us prior to final settlement to confirm Group Health's subrogation amount.'" Id. at

392(alteration in original).

In January 2014, counsel notified GHO that mediation of the Coons' claim

against TEC was scheduled for February. GHO advised that Pamela Henley would

be the GHO contact for the mediation. GHO maintains that while it was notified

when the mediation was postponed until March 2014, it was never consulted during

the mediation negotiations that led to the settlement.

-6-
Group Health Cooperative v. Coon, 96516-1

On April 25, 2014, the Coons and TEC signed a settlement agreement for an

additional $2 million. Id. at 254-56. In total, the Coons received $2,328,936.86

from TEC for their negligence claims. Id. After receipt of the settlement, counsel

for the Coons advised GHO that his firm would hold back the amount of GHO's lien

in its trust account until May 30, 2014 and requested that GHO waive its

reimbursement rights. Id. at 392. On May 30, 2014 at 3:39 p.m., Henley responded

that GHO would not waive its reimbursement rights but would pay "its equitable

apportionment of the collection costs and legal fees/expenses incurred to recover

GH[0]'s subrogated interest." Id. Counsel informed Henley on June 2, 2014 that

his firm had disbursed the remaining funds to the Coons. Id. at 393.

In 2016,GHO filed a complaint in Snohomish County Superior Court,seeking

a determination of its subrogation rights and a judgment against the Coons for

$372,634, the amount of medical expenses paid by GHO. Id. at 495. Both sides

filed motions for summaryjudgment. The superior court granted GHO's motion and

held:

Reasonable minds can reach but one conclusion as to the following facts:
a. Parties may decide by agreement what amounts to full compensation for
their damages taking into account their chances of success or failure at
trial.

c. Once a party settles a claim, the party has identified and accepted the
amount of settlement as full compensation for the party's damages.

-7-
Group Health Cooperative v. Coon, 96516-1

g. By settling for less than the available insurance policy limits in
consideration of Defendants' evidence of damages versus risk of failure
at trial, NATHANIEL COON and LORI COON's agreement to settle
constitutes full compensation for their damages as a matter oflaw.

Id. at 511-12 (Order Granting PI. GHO's Mot. for Summ. J.). The superior court

entered judgment against the Coons in favor ofGHO in the amount of$372,634 plus

interest. Id. at 513.

The superior court separately denied a cross motion for summary judgment

by the Coons, concluding that they "breached their duties under their contract" by

settling with TEC "without protecting Plaintiffs subrogation interest." Id. at 516.

The Coons appealed the superior court's order granting summary judgment to GHO

but elected not to appeal the denial oftheir motion.^

The Court ofAppeals reversed the order granting summaryjudgment to GHO,

holding that GHO had no valid and enforceable subrogation claim against the Coons.

Grp. Health Coop. v. Coon,4 Wn. App.2d 737, 754,423 P.3d 906(2018). Because

questions of fact exist regarding (1) whether the Coons received full compensation

for their losses and (2) whether GHO was prejudiced by the Coons' breach of their

insurance contract,the Court ofAppeals reversed and remanded to the superior court

^ GHO argues that the Coons' appeal is moot because they did not appeal the
superior court's order denying their summary judgment motion. Pet. for Review at 5. The
Court of Appeals rejected this argument,recognizing that the determination ofbreach does
not affect the Coons' rights under the contract absent proofof prejudice to GHO. See Grp.
Health Coop. v. Coon,4 Wn. App. 2d 737, 748, 423 P.3d 906(2018).

-8-
Group Health Cooperative v. Coon, 96516-1

for further proceedings. Id. GHO petitioned this court for review on both ofthese

issues, and we granted review pursuant to RAP 13.4(b). Grp. Health Coop. v. Coon,

192 Wn.2d 1017, 433 P.3d 812(2019).

ANALYSIS

When an appeal arises out of an order granting summary judgment,this court

engages in the same inquiry as the trial court. Johnson v. Farmers Ins. Co. of Wash,

117 Wn.2d 558, 565,817 P.2d 841 (1991). Summary judgment is proper only when

"there is no genuine issue as to any material fact and ...the moving party is entitled

to a judgment as a matter of law." CR 56(c). "All facts and reasonable inferences

are considered in the light most favorable to the nonmoving party, and all questions

of law are reviewed de novo." Mountain Park Homeowners Ass'n v. Tydings, 125

Wn.2d 337, 341, 883 P.2d 1383(1994)(citation omitted).

Fundamentally, subrogation governs "how, if, and when an insurer may

recover monies that it has paid to its insured." Brendan S. Maher & Radha A.

Pathak, Understanding and Problematizing Contractual Tort Subrogation, 40 LOY.

U. Cm. L.J. 49, 50 (2008). While the idea of subrogation began as an equitable

doctrine, modem subrogation rights can be found in common law, contract, or

statute. Id. at 59. Wherever they reside, it has long been recognized that such rights

-9-
Group Health Cooperative v. Coon, 96516-1

are subject to the principle that an insured must be "made whole" for any losses

before an insurer may recover its payments:

[Wjhile an insurer is entitled to be reimbursed to the extent that its insured
recovers payment for the same loss from a [tortfeasor] responsible for the
damage, it can recover only the excess which the insured has received from
the wrongdoer, remaining after the insured isfully compensated for his loss.

Thiringer v. Am. Motors Ins. Co., 91 Wn.2d 215, 219, 588 P.2d 191 (1978)

(emphasis added); see also Daniels v. State Farm Mut. Auto. Ins. Co., 193 Wn.2d

563, 576, P.3d (2019) (explaining "[wjhether in the context of a

reimbursement request, offset, or direct subrogation action, a fault-free insured must

be made whole for their entire loss before an insurer may offset or recover its own

payments"). This "made whole" principle "embodies a policy deemed socially

desirable in this state." Thiringer, 91 Wn.2d at 220.

A. Absent a Litigated Determination of Nonliability, Any Subrogation or
Reimbursement Rights Asserted by an Insurer Are Subject to the "Made
Whole" Doctrine

The relevant portion ofthe Coons' insurance contract states:

If the Injured Person's injuries were caused by a third party giving rise to a
claim of legal liability against the third party and/or payment by the third
party to the Injured Person and/or a settlement between the third party and
the Injured Person, GHO shall have the right to recover GHO's Medical
Expenses from any source available to the Injured Person as a result of the
events causing the injury, including but not limited to funds available through
applicable third party liability coverage and uninsured/underinsured motorist
coverage. This right is commonly referred to as "subrogation." GHO shall
be subrogated to and may enforce all rights of the Injured Person to the full
extent of GHO's Medical Expenses.

-10-
Group Health Cooperative v. Coon, 96516-1

GHO's subrogation and reimbursement rights shall be limited to the excess
ofthe amount required to fully compensate the Injured Person for the loss
sustained, including general damages.

CP at 93 (emphasis added). From this contract language, GHO argues that it is

entitled to full recovery of its payments to Coon because there is no "third-party

tortfeasor ... 'responsible in law' for the insured's injury." Pet. for Review at 10.

This argument fails for several reasons.

Initially, as the Court of Appeals recognized, GHO's argument is internally

contradictory. See Grp. Health Coop.,4 Wn. App. 2d at 750-51. Because GHO has

identified its claim as a subrogation lien, GHO bears the burden to prove the

existence of a third-party tortfeasor for the lien to attach. Id. at 751. If we accept

GHO's assertion that there is no third-party tortfeasor within the meaning of its

contract, which we do not, then the Court of Appeals is correct that GHO has no

subrogation claim at all. Id. Quite simply, if Coon's injuries were not "caused by a

third party giving rise to a claim oflegal liability," CP at 93,then, by its own contract

language, GHO is not entitled to any reimbursement. In such instance, the Coons

would have simply received the benefit oftheir first-party insurance contract.

Second, GHO's argument wrongly assumes that an insured may contract for

reimbursement without regard to limits on its subrogation rights. Pet. for Review at

8. GHO cites to Mahler v. Szucs for this notion, but the Mahler court explicitly

recognized that even when such contract language is employed, any right to

-11-
Group Health Cooperative v. Coon, 96516-1

reimbursement remains subject to Thiringer's "made whole" rule. 135 Wn.2d 398,

424, 957P.2d 632(1998).

State Farm had only a right of reimbursement from its insureds from the
proceeds of the settlements. More important, State Farm had to await the
outcome of the settlement process before attempting any recovery from the
tortfeasors' insurers, because, pursuant to Thiringer, State Farm was not
entitled to any recovery of its PIP payments until its insured had been made
whole.

Id.', see also Sherry v. Fin. Indem. Co., 160 Wn.2d 611, 619, 160 P.3d 31 (2007)

("An insurer is entitled to an offset, setoff, or reimbursement when both (1) the

contract itself authorizes it and (2)the insured is fiilly compensated by the relevant

'applicable measure of damages.'" (quoting Barney v. Safeco Ins. Co. ofAm., 73

Wn. App. 426, 429-31, 869 P.2d 1093 (1994))). Even ifthis court were to find that

GHO's right to direct reimbursement is not dependent on its right to subrogation,the

fact remains that, if Coon has not been "made whole," no right to reimbursement

ever arises. Certainly, absent full recovery by Coon, GHO does not have a right to

be reimbursed from the Coons' settlement proceeds.

Ultimately, GHO's argument for reimbursement without regard to the "made

whole" rule rests on equating this case with Cook v. USAA Casualty Insurance Co.,

121 Wn. App. 844, 846, 90 P.3d 1154 (2004). There, the Court of Appeals found

Thiringer inapplicable in a situation where there was, in fact, no third party liable

for the insured's losses. Cook, 121 Wn. App. at 848-49. Cook involved a house fire

-12-
Group Health Cooperative v. Coon, 96516-1

started by a gas water heater exhaust flue. Id. at 846. Though the Cooks settled with

their insurer, USAA,for policy limits, they elected to go to trial, claiming that the

water heater installer's negligence was the cause ofthe fire. Id. At trial, however,

the jury returned a verdict for the defense and found no negligence on the part ofthe

installer. Id. Thus,there was no third-party tortfeasor from whom the insured could

recover.

While the Cooks' litigation efforts were under way, USAA sold its

subrogation interest to the water heater installer and a general contractor who was

managing the Cooks' home construction, for $151,000. Id. The Cooks later

demanded that USAA make them whole for their uninsured losses by giving them a

portion ofthe proceeds that USAA garnered in its own settlement negotiations with

the installer. Id. at 847. The court rebuffed this unusual move, holding,"[W]hen

the insured has no basis in tort or contract for a recovery, such as in the Cooks'

situation, then Thiringer does not apply." Cook, 121 Wn. App. at 849. Because the

Cooks received the full benefit of their insurance contract and did not suffer a

compensable injury (in the sense that there was a litigated determination of no

liability), the court concluded that the Cooks were not entitled to share in USAA's

(fortuitous) recovery. Id.

-13-
Group Health Cooperative v. Coon,96516-1

As the Court of Appeals recognized, there are three distinguishing factors

between Cook and the present case. See Grp. Health Coop.,4 Wn. App. 2d at 752-

53. First, in Cook,there was a litigated determination of nonliability: a jury decided

the entity paying money to USAA (the installer) had no liability to the Cooks. Id.

Here,in contrast,the Coons pursued claims ofliability against TEC and settled based

on a calculated risk decision involving the difficulty of proving a res ipsa loquitur

case at trial. Second, the Cooks received the full benefit of their insurance policy

from USAA because they received, and retained in full, their insurance proceeds.

Id. at 753. In contrast, here, refusing to apply Thiringer "would deprive the Coons

of the full benefit of their Group Health policy" by making them reimburse GHO

without having been "made whole." Id. Lastly, and perhaps most importantly, the

Cooks attempted to use Thiringer to recover monies from USAA that a court already

determined they had no legal right to recover. Id. In other words,"the Cooks sought

to benefit from USAA's more successful litigation strategy and transfer the

economic consequences oftheir choice to USAA." Id. As the Coons correctly point

out, unlike the Cooks, who never made a recovery to which the Thiringer priority

rule could apply, their situation represents the typical settlement scenario to which

the Thiringer priority rule has been applied over the last 40 years. Suppl. Br. of

Resp'ts at 9.

-14-
Group Health Cooperative v. Coon,96516-1

The fact that the Coons' case involves a health insurance policy rather than a

liability or casualty policy does not support a different outcome. Admittedly, there

was some initial question early in our jurisprudence "about the extent to which

insurance law applies" to health insurance contracts. Brown v. Snohomish County

Physicians Corp., 120 Wn.2d lAl,753,845 P.2d 334(1993). In response, this court

issued a clarification in Brown by noting,"'[T]he key factor' in Thiringer was 'the

presence or absence of double recovery', not subrogation principles or premiums."

Id. at 755 {ciiing Keenan v. Indus. Indem. Ins. Co. ofNw., 108 Wn.2d 314, 319,738

P.2d 270 (1987)). For this reason, we held, "[T]o the extent that the provisions [in

a health insurance contract] operate to exclude coverage for medical expenses before

the injured party is fully compensated for general damages and other special

damages, the second floating layer of coverage is effectively negated by the

provisions." Id. at 757.

This holding was later applied in British Columbia Ministry of Health v.

Homewood, where the defendant was sued by her health insurer for reimbursement

of medical payments made on her behalf. 93 Wn. App. 702, 703-04, 970 P.2d 381

(1999). The insurer claimed that it was entitled to reimbursement because

Homewood received settlements from multiple joint tortfeasors "for less than their

combined policy limits without the insurer's consent." Id. at 704. Because the case

-15-
Group Health Cooperative v. Coon,96516-1

arose from an accident that resulted in multiple severe injuries, including permanent

partial quadriplegia, Homewood estimated during mediation that her total damages

exceeded $10 million. Id. at 705. As in this case, however, Homewood faced

substantial challenges in proving liability and, as a result, estimated that she would

recover less than $5 million at trial. Id. For these reasons, Homewood accepted a

structured settlement of just under $3 million (Canadian dollars). Id. at 706.

Applying Thiringer, the court held, "[T]he insured must recoup his or her general

damages from the tortfeasor before subrogation is permitted." Id. at 712-13.

Homewood was therefore not obligated to reimburse her insurer the amount it paid

for health care expenses because she had not been "made whole." Id. at 715. In

light ofBrown and Homewood,there is no room for GHO's argument that the"made

whole" rule is inapplicable to its contractual subrogation rights in the health

insurance context.

Applying the "made whole" rule, the superior court erred when it found,"By

settling for less than the available insurance policy limits in consideration of

Defendants' evidence of damages versus risk of failure at trial, NATHANIEL

COON and LORI COON's agreement to settle constitutes full compensation for

their damages as a matter oflaw." CP at 512(Order Granting PI. GHO's Mot. for

Summ. J.)(emphasis added). Settlement for less than the tortfeasor's policy limits

-16-
Group Health Cooperative v. Coon, 96516-1

does not create a presumption of full compensation. Liberty Mut. Ins. Co. v. Tripp,

144 Wn.2d 1, 22,25 P.3d 997(2001). Instead, acceptance of a settlement is simply

some evidence that the insured has been fully compensated. Loo Thien Truong v.

Allstate Prop. & Cas. Ins. Co., 151 Wn. App. 195, 201, 211 P.3d 430 (2009).

Despite the superior court's ruling, GHO wisely conceded this point at oral

argument. Wash. Supreme Court oral argument. Grp. Health Coop. v. Coon, No.

96516-1(May 30, 2019), at 39 min., 39 sec., video recording by TVW,Washington

State's Public Affairs Network, http://www.tvw.org. Because there is no

presumption of full compensation from the acceptance of a settlement below policy

limits, and because the Coons have met their burden of production by putting forth

evidence that they have not been fully compensated, summary judgment was

inappropriate. On remand, GHO bears the burden of proving full compensation.

This is a question of fact, not oflaw.

In sum, the Coons have a right in contract and at common law to receive full

compensation for their losses before GHO may seek reimbursement of its payments

for Coon's medical expenses. The Coons' situation is analogous to that of every

injured party who makes a calculated decision based on the risks of litigation to

accept a settlement. We decline the invitation to upset almost four decades of

insurance law in Washington State recognizing the wisdom and fairness of the

-17-
Group Health Cooperative v. Coon, 96516-1

"made whole" principle. We reverse the superior court order granting summary-

judgment to GHO and remand for further proceedings to determine, as a question of

fact, whether the Coons have been fully compensated for their damages.

B. An Insurer Is Required To Prove That It Was Prejudiced before It Can Assert
Any Reimbursement Rights Based on an Insured's Breach of Contract

Separate from the question of the applicability of the "made whole" rule, we

must address GHO's argument that the Coons forfeited their rights under the

insurance contract by breaching the contract. In an order denying the Coons' motion

for summary judgment,the superior court found that the "Defendants breached their

duties under their contract with Plaintiff by failing to notify GHO prior to

acceptance ofa settlement. CP at 516(Order Den. Defs.' Mot. for Summ. J.). GHO

contends that, because ofthis breach, GHO is entitled, per the contract language, to

full reimbursement as a matter oflaw. CP at 402. This is incorrect.

"It may be a peculiarity ofinsurance law, or a variant of general contract law,

but not every breach discharges performance by the other party." Pilgrim v. State

Farm Fire cfe Cas. Ins. Co., 89 Wn. App. 712, 724, 950 P.2d 479 (1997). As this

court explained in Tripp,"[Wjhile failure to give notice of settlement is a breach of

the policy, it gives rise to a remedy only if the insurer is prejudiced by the lack of

notice." 144 Wn.2d at 16. The burden of proofis on the insurer to demonstrate that

it was prejudiced. Or. Auto. Ins. Co. v. Salzberg, 85 Wn.2d 372, 376, 535 P.2d 816

-18-
Group Health Cooperative v. Coon, 96516-1

(1975). "To establish prejudice, the insurer must show 'concrete detriment . . .

together with some specific harm to the insurer caused thereby.'" Pilgrim, 89 Wn.

App. at 724-25 (alteration in original)(quoting Canron,Inc. v. Fed. Ins. Co., 82 Wn.

App. 480, 487, 918 P.2d 937(1996)). Determining prejudice from a policy breach

is a question offact for the jury and "will seldom be established as a matter oflaw."

Dien Tran v. State Farm Fire & Cas. Co., 136 Wn.2d 214,228,961 P.2d 358(1998).

Throughout the summary judgment proceedings, GHO did not offer any

evidence of prejudice, CP at 389-407, but instead maintained that no showing of

prejudice was required because the public policy considerations present in Tripp

were not at issue. Pet. for Review at 19. GHO relies on Tran and Pilgrim to support

its argument, but these cases compel the opposite conclusion. Tran, 136 Wn.2d at

217; Pilgrim, 89 Wn. App. at 714. Both Tran and Pilgrim involved allegations of

insurance fraud, and the court not only analyzed the issue of prejudice but

specifically found that the insurer had been prejudiced as a matter oflaw. Tran, 136

Wn.2d at 231 ("Tran's refusal to submit the requested fmancial information, an act

which breached the cooperation clause and impeded State Farm's ability to

investigate the claim, caused prejudice."); Pilgrim, 89 Wn. App. at 725 ("The

Pilgrims' refusal to disclose relevant fmancial information prejudiced State Farm as

a matter of law."). The Court of Appeals explained in Pilgrim, "In Washington,

-19-
Group Health Cooperative v. Coon, 96516-1

however,the rule is well established. In every cooperation clause, notice clause, and

'no settlement clause' case, where the prejudice issue has been raised, the court has

analyzed prejudice." 89 Wn.App. at 723. Consistent with these cases and our long

standing precedent, we reiterate that an insurer is entitled to relief based on an

insured's breach of contract only if, and to the extent, it can demonstrate prejudice

resulting from the breach.

Here, questions of fact exist regarding whether GHO was prejudiced by the

Coons' failure to provide notice prior to finalizing the TEC settlement. By its own

admission, GHO was advised by the Coons' attorney that the Coons would be

proceeding to mediation with TEC. CP at 405. GHO was also advised when the

mediation was postponed. Id. While GHO was not consulted prior to acceptance of

the final settlement, it offered no evidence ofprejudice that resulted from this failure

to consult. CP at 389-402. Importantly, there was no evidence that informing GHO

of the Coons' intent to enter into the settlement on Friday would have altered the

parties' disagreement about the "made whole" rule. Nor did GHO offer evidence

that it could have done anything to obtain a greater settlement had it been timely

notified. It may be that evidence of prejudice was not produced in light of the

superior court's ruling, and therefore, further proceedings are warranted. In

accordance with Tripp, GHO bears the burden to prove it was prejudiced by the

-20-
Group Health Cooperative v. Coon, 96516-1

Coons' failure to notify prior to acceptance of the TEC settlement, and any remedy

is limited to the extent of established prejudice. 144 Wn.2d at 16.

CONCLUSION

The superior court wrongly granted GHO's motion for summary judgment

and erred when it concluded that acceptance of a settlement under policy limits

created a presumption that the Coons were "made whole" as a matter of law.

Because the Coons had a contractual and common law right to receive their full

measure of damages before reimbursing GHO and they put forth substantial

evidence that they were not"made whole," further proceedings are necessary on this

issue. Additionally, GHO cannot avoid its reimbursement obligations as a result of

the Coons' contract breach unless it proves that it was prejudiced by the Coons'

failure to provide notice prior to settling their tort claims against TEC. We affirm

the Court of Appeals and remand to the trial court for fiarther proceedings consistent

with this opinion.

-21-
Group Health Cooperative v. Coon, 96516-1

WE CONCUR:

H/l

k//
r

A.

-22-