A $21 million jury verdict and a bankruptcy triggered a Washington appeals court decision clarifying what claims can be brought against insurers after major losses.
On Oct. 21, the Washington Court of Appeals, Division II, issued its decision in Anderson v. Farmers Insurance Company of Washington. The case centers on Cristina Anderson, who was seriously injured in 2019 after being struck by a car driven by Wendy Gibson in Sumner, Wash. Gibson, insured by Farmers Insurance with a $25,000 liability policy, was defended by counsel appointed by Farmers.
Anderson sued Gibson and the City of Sumner, settling with the city before trial. A jury awarded Anderson $21 million against Gibson. After the verdict, Gibson filed for Chapter 7 bankruptcy. During the bankruptcy, the trustee acquired all of Gibson’s potential legal claims, which were then sold to Anderson with court approval.
Anderson subsequently sued Farmers, alleging the insurer and its agents failed to protect Gibson’s interests, acted in bad faith, and prioritized their own financial concerns over Gibson’s. She claimed Farmers did not negotiate in good faith, failed to allocate fault to other entities, and did not adequately support Gibson’s defense. Anderson’s complaint also stated that Farmers handled Gibson’s liability claims for indemnity and defense through adjusters and attorneys who were employees or agents of Farmers, despite alleged conflicts of interest.
Farmers moved to dismiss, arguing that Washington law – specifically the precedent set in Kommavongsa v. Haskell – bars the assignment of legal malpractice claims to an adversary in the same litigation, even if acquired through bankruptcy. The trial court agreed and dismissed Anderson’s complaint.
On appeal, Anderson argued that the prohibition on assigning legal malpractice claims should not apply to claims acquired involuntarily through bankruptcy, and that some of her claims were not legal malpractice but direct claims against Farmers for bad faith and statutory violations.
The appellate court affirmed the dismissal of Anderson’s acquired legal malpractice claims, holding that Washington law prohibits such assignments even when claims are purchased from a bankruptcy trustee. The court cited public policy concerns, including the risk of collusion and the potential impact on the willingness of attorneys to defend underinsured clients.
However, the court reversed the dismissal of Anderson’s non-legal-malpractice and independent claims. The court found that Anderson’s complaint included allegations of insurance bad faith and statutory violations based on Farmers’ own actions, not just on the conduct of assigned counsel. These claims, the court held, are not barred by the prohibition on assignment of legal malpractice claims and should proceed.
The appellate decision did not discuss specific insurance policy clauses in detail but referenced Anderson’s claims that Farmers was required to handle Gibson’s liability claims for indemnity and defense, and that Farmers had non-delegable duties to its insured under Washington law.
The case now returns to the trial court to determine which of Anderson’s claims can move forward. The decision underscores the limits of claim assignment in Washington and highlights the ongoing responsibilities of insurers in handling claims and defending policyholders, even after large verdicts and bankruptcy proceedings.
