The Washington Supreme Court yesterday tossed out the largest jury award ever levied against the state, but in doing so, it may have exposed state agencies to even larger liability.

The ruling overturned a $22.4 million payout to the family of Paula Joyce, a Tacoma woman killed when her car was hit by a felon who was high on marijuana and blowing through red lights in a stolen Chevy Suburban.

In the year leading up to the 1997 crash, Vernon Valdez Stewart had repeatedly violated the terms of his supervision by the Department of Corrections (DOC), so Joyce's death became a test case on how far the state's liability stretches for felons under supervision.

Writing for a 6-3 majority, Justice Tom Chambers found the state could be held responsible for "lapses of care" such as Joyce's death. The state's supervision of offenders includes "a duty to prevent foreseeable injury," he wrote.

But the ruling also faulted the jury instructions in the trial court and sent the case back to Pierce County Superior Court for a new trial. That vacated the jury award, which had ballooned, with interest, to $33 million after five years of appeals.

With more than 29,000 offenders now under supervision, the ruling opens taxpayers to "virtually unlimited exposure" to financial pay-outs, Attorney General Rob McKenna said in a statement.

"Despite the tragic circumstances, this decision highlights larger questions for the Legislature and the people of Washington," the statement said. "It places liability on DOC for the conduct of offenders that it does not have the authority to control."

Phil Talmadge, a Democrat and former Supreme Court justice, said the ruling is not as dire as McKenna, a Republican, claims. It merely affirms a 1992 Supreme Court ruling in a similar wrongful-death case involving DOC, he said.

"I think [McKenna] is pushing the panic button," Talmadge said.

Washington state waived its immunity from lawsuits nearly 40 years ago, with the belief that it should compensate citizens for official wrongdoing.

Since 1987, Washington has paid out $445 million for all types of claims. The Department of Social and Health Services has paid out the most, $147 million; DOC has paid out $60 million

Jack Connelly, Joyce's lawyer, said the court's decision to send the case back for a new trial prolongs the suffering of Joyce's husband and four children. But he said the ruling also was a boon for public safety because it clearly affirmed the DOC's responsibility to closely monitor dangerous offenders.

"The state should be held accountable for its negligence," said Connelly, a Tacoma lawyer who is president of the state's trial-lawyers association. "In this case, the state was egregiously negligent and should be held accountable for it."

The state's argument that it could not have foreseen Joyce's death, Connelly said, was undermined by what he called "a tragedy of errors."

Stewart, 21 at the time of the crash, had been placed on 24 months of community supervision for convictions in King County of assault and possession of stolen property. He virtually ignored a lengthy set of supervision conditions. His conditions had included staying in King County, paying fines, reporting to his community corrections officer and staying away from controlled substances.

Less than a year into his supervision, he was arrested for speeding in a stolen car in Kittitas County, then was repeatedly hospitalized for hallucinations. His DOC officer failed to report Stewart's mental-health problems or his violations following the Kittitas County conviction, as required.

In all, the corrections officer, Catherine Lo, wrote Stewart up for just three of an estimated 100 supervision violations, according to evidence presented by Joyce's lawyers during a trial in 2000. Had Lo done her job, Connelly said, Stewart could have been in jail at the time of the accident.

"It doesn't make sense for [DOC] to say that it's unforeseeable that a guy will steal a car while on supervision, when he was on supervision for stealing a car," Connelly said. "In order for it to work, you'd have to overlook the facts of the case."

Lo was deported by the Immigration and Naturalization Service a few months before the car crash, and Stewart's new corrections officer had not met with Stewart before the crash, Connelly said. Stewart was convicted of second-degree murder for killing Joyce and is serving a 24-year sentence.

The Joyce family sued the state in 1999.

In a sharply worded dissent yesterday, state Supreme Court Justice Mary Fairhurst wrote it was "nonsensical" to hold DOC accountable for bad behavior by offenders under its supervision.

"Tragic facts alone are not an appropriate basis for establishing a new rule of law," wrote Fairhurst, who represented the DOC for the Attorney General's Office before her election to the Supreme Court.

Kit Bail, who supervises DOC's field offices from King County to the Canadian border, said the ruling probably will not change how DOC supervises offenders.

"Do we read these types of ruling? We'd be silly not to," Bail said. "But this doesn't make us frightened."

The case was closely watched by other government agencies, including the Washington Cities Insurance Authority, which insures about 100 municipalities.

"The ruling makes the state a babysitter for every criminal that gets out of prison," said Stewart Estes, who filed a friend-of-the-court brief on behalf of an insurance pool.

Connelly, the Joyce family's lawyer, said he would ask that the case go back to trial quickly. "The continued wait is unfair to the family," he said. "It's been eight years."

Jonathan Martin: 206-464-2605 or jmartin@seattletimes.com

Times reporter Peter Lewis contributed to this report.