February, 2008
Fisher/Finney rule only applies to UIM carriers, not to third parties
by Andrew Bergh

Under Washington law, it is well-settled that when a UIM carrier has notice of a third party lawsuit and an opportunity to intervene, the UIM carrier is bound by the resulting judgment.

But what about the flip-flop situation? If the accident victim first arbitrates her UIM claim and the tortfeasor has notice of the proceeding, is the outcome of the arbitration binding on the tortfeasor? In Mathioudakis v. Fleming, 140 Wn. App. 247 (2007), the Court of Appeals (Division Two) answered this question in the negative.

Mathioudakis arose from a two-car collision in Grays Harbor County involving unusual facts.

One blustery November evening, George Belesiotis and his wife, Helen Mathioudakis, were driving home from a dinner party in Ocean Shores. While traveling on SR 109 at approximately 50 miles per hour, Belesiotis adjusted his headlights to low beam to accommodate an oncoming car. After switching back to his high beams, Belesiotis almost immediately saw an object blocking the roadway, so he abruptly applied his brakes. The culprit? A large fallen tree that was blocking both sides of the two-lane highway.

At her husband’s request, Mathioudakis called 911 to report the downed tree. When the 911 operator told them to wait until help arrived, the couple dutifully complied by sitting in their truck, which was still situated in their original lane of travel. While biding their time, they saw a handful of cars approach from both directions, slow down, stop before the fallen tree, and then turn around.

After five or six minutes went by, Belesiotis heard something hit the top of the truck. When he got out to investigate, he saw that the wind was causing another tree to bend over the vehicle. Concerned the tree might fall and damage his truck, Belesiotis opted to relocate it on the opposite side of the highway. This spot would be safe, he figured, since the downed tree blocked oncoming traffic.

Christina Fleming, meanwhile, was driving in the opposite direction on SR 109 between 55 and 60 miles per hour.

As she approached the fallen tree, Fleming slowed down because she saw flashing headlights on the other side of the roadway and thought somebody was warning her that a cop was in the vicinity. (This suggests that Belesiotis’s headlights were off, since Fleming presumably would have seen them, too.)

When she saw tree branches coming at her windshield a moment or two later, Fleming immediately slammed on her brakes – but couldn’t stop completely before hitting the tree. Instead, her car drove through its top branches, emerged on the other side, and plowed into the stopped truck. Although Belesiotis’s airbag deployed, sparing him from serious injury, his wife was not nearly so fortunate.

Mathioudakis later initiated two proceedings to recover damages for her substantial injuries. Besides demanding arbitration under the UIM coverage of her auto policy, she also filed suit against Fleming in Grays Harbor County Superior Court.

Predictably, the UIM arbitration occurred first. The claimant prevailed on all counts, as the panel of arbitrators ruled that Fleming was negligent, that Belesiotis and Mathioudakis were not negligent, and that Mathioudakis was entitled to $250,000 in damages.

In the civil action, the parties later cross-moved for summary judgment on the issue of liability. Neither side prevailed, however, as the trial court said a jury would need to resolve their “convoluted factual positions.”

After considerable discovery, Mathioudakis again went on offense shortly before trial. This time, based on the favorable ruling at the UIM arbitration, she moved to estop Fleming from asserting that she wasn’t negligent. The basis of her argument? That under Lenzi v. Redland Ins. Co., 140 Wn.2d 267 (2000) and the so-called Fisher/Finney rule, the defendant was estopped from denying negligence because the arbitration panel had already resolved this issue against her.

This motion, too, was denied. But if Mathioudakis thought her luck would change at trial, she was sorely mistaken. That’s because after the trial court denied her motion for a directed verdict, the jury returned a verdict for Fleming, finding that only Belesiotis had been negligent.

In the ensuing appeal, Mathioudakis argued that by denying her “collateral-estoppel based motion” to bar Fleming from litigating negligence at trial, the trial court had erred as a matter of law. Begging to differ, Fleming contended that the Fisher/Finney rule didn’t apply because she wasn’t a party to the UIM arbitration, which only determined whether Mathioudakis was entitled to UIM benefits under her policy.

The genesis of the Fisher/Finney rule is Finney v. Farmers Ins. Co. of Wash., 21 Wn. App. 601 (1978), aff’d, 92 Wn.2d 748 (1979).

Finney involved a two-car collision that tragically resulted in five fatalities. The estate of one of the deceased passengers later made a $30,000 UIM claim (there were two $15,000 policies), which the UIM carrier (Farmers) promptly rejected. The estate then filed suit, which ultimately resulted in a verdict and judgment for almost $46,000 against the estate of one of the drivers, who was uninsured. While conceding that it had a right to intervene, Farmers nonetheless contended that it wasn’t bound by the judgment. In a case of first impression in Washington, the Court of Appeals, following the lead of six other jurisdictions, disagreed:

Here, Farmers was fully apprised of plaintiffs’ efforts to obtain recompense for Robin’s tragic death after Farmers had denied uninsured motorist coverage. Farmers knew that plaintiffs were seeking to establish that Wood was the owner of the 1963 Nova and that he was liable for damages resulting from the collision. Farmers had to know that this determination might be critical to their liability under the uninsured motorist provisions of their policies. In these circumstances, and based on the foregoing authorities, we hold that Farmers is bound by the findings, conclusions and judgment entered in the judgment against the Wood estate.

21 Wn. App. at 617-18.

Nineteen years later, our state Supreme Court decided Fisher v. Allstate Insurance Co., 136 Wn.2d 240 (1998). As described by the Mathioudakis court, the insured in Fisher was seriously injured in a motorcycle accident. Her UIM limit was $25,000, while the tortfeasor’s liability limit was $125,000. After filing separate lawsuits against her UIM carrier and the tortfeasor, the insured later arbitrated her third party claim and received an (apparently binding) award for $236,000. Following Allstate’s refusal to pay the $25,000 UIM limit, the trial court ruled that it was bound by the arbitration award. The high court affirmed, holding that Finney was “correctly decided” and that Allstate was bound by the arbitration ruling since it had notice of the claim but elected not to intervene.

Lenzi, supra, then happened along just two years later. With one exception, said Division Two, the facts in Lenzi and Fisher were identical. The only difference was that instead of a favorable arbitration award, the insured in Lenzi obtained a default judgment against the tortfeasor. Reaffirming Fisher, the high court concluded in Lenzi that the UIM insurer was bound by the default judgment because it received notice of the third party suit, yet chose not to intervene or file a notice of appearance.

Against this background, the Mathioudakis court noted that the Fisher/Finney rule is only “loosely based” on the principles of collateral estoppel. Its main underpinning, the court indicated, is the contractual privity between the UIM carrier and its insured. So to cut to the chase, Division Two ultimately sided with Fleming:

Although noted in caselaw, the insurer’s right to intervene is not the basis for the Fisher/Finney rule. Rather, the insurer’s contractual obligation to pay is the basis for the rule. [Citation omitted.] The Fisher/Finney rule is based on an insurer’s contractual promise to pay its insured or another whom its insured has injured. [Citation omitted.] Here, there was clearly an insurance contract between Mathioudakis and her UIM insurer. But there was no contract between Mathioudakis and Fleming and, thus, no privity between Fleming and either Mathioudakis or [her] UIM insurer. Thus, Fleming had no standing to intervene in the arbitration between Mathioudakis and her UIM insurer; therefore, the outcome of that arbitration had no bearing or effect on Fleming’s interests.

140 Wn. App. at 253-54.

So who got it right: the arbitration panel or the Grays Harbor County jury? The answer to that question surely depends on whether you’re talking to Mathioudakis or Fleming. In any event, Mathioudakis is a scary reminder that even when the same facts are considered, a jury and an arbitrator (or arbitration panel) can sometimes reach the exact opposite conclusion.

Mathioudakis also provides a thorough refresher course on the Fisher/Finney rule. With fewer and fewer auto policies these days offering binding arbitration as the sole forum for UIM disputes, however, its ongoing usefulness may be limited. Moreover, claimants and their counsel should be mindful that the collateral estoppel doctrine cuts both ways. See, e.g., Neff v. Allstate Insurance Co., 70 Wn. App. 796 (1993), review denied, 123 Wn.2d 1004 (1994) (barring UIM claim because insured could not relitigate unfavorable damages determination in earlier third party suit).

In sum, instead of giving notice to the UIM carrier and affording it an opportunity to intervene, filing a single action against both the tortfeasor and the UIM carrier may nowadays make the most sense. After all, the cost of one lawsuit is definitely cheaper than two, and there is virtually no risk that the collateral estoppel doctrine will be used offensively against the claimant/insured.

Andrew Bergh, WSTLA EAGLE member, former prosecutor and insurance defense attorney, now limits his practice to plaintiff's personal injury cases, including professional liability and insurance bad faith.