Missouri Court of Appeals Applies "All Sums" Doctrine and Reinstates $62M verdict Against Lloyd's of LondonApril 19, 2013 | Angela Higgins
On April 16, the Missouri Court of Appeals for the Eastern District reinstated a jury verdict against Certain Underwriters at Lloyd’s of London for $62.5 million under various excess liability policies issued to Doe Run Resources Corporation (“Doe Run”), a lead mining and smelting company operating in St. Francois County, Missouri, related to environmental remediation efforts by the company. The decision is noteworthy as it represents a new statement of Missouri law on “all sums” versus “pro rata” allocation of multiple policy years’ coverage, and a reversal of this court’s prior position on the issue.
Prior to trial, the court granted summary judgment in favor of Lloyd’s on its argument that there was no coverage for three of the six mining sites, which were not in operation during the policy periods implicated by Doe Run’s claims. Notwithstanding this ruling, the jury was provided a verdict form to assess damages for all six mining sites, and did find in Doe Run’s favor on all six. The jury also returned a verdict for vexatious refusal to pay on each of the sites. The court reduced the jury’s verdict based upon its prior rulings, to $5 million. Both sides appealed. The Eastern District Court of Appeals reversed the trial court’s rulings in favor of Lloyd’s, and reinstated the $62.5 million jury verdict against the underwriters.
ALL SUMS VERSUS PRO RATA COVERAGE
The “all sums” dispute arises in the context of liabilities for which there is a long latency period, typically toxic tort or environmental clean-up cases, in which liability-provoking events occurred in multiple policy periods. It is not unusual for insurance policies, particularly historic ones, to provide coverage for “all sums which the insured shall become legally obligated to pay as damages” resulting from a covered occurrence within the policy period.
The policyholder’s argument for “all sums” coverage is that the policyholder should be able to choose any policy period in which there was a covered occurrence or covered wrongful act, and exhaust all coverage available under policies applying to that time frame, without regard to other policies that might provide coverage. The theory is that the entirety of the damages are part of the “all sums” covered by the selected policies, and that the insured’s “reasonable expectation” is that any given policy will provide coverage, up to its limits, for “all sums” resulting from the covered occurrence or acts. Under “all sums” treatment of claims, “when multiple policies are triggered to cover the same loss, each policy provides indemnity for the insured’s entire liability, and each insurer is jointly and severally liable for the entire claim.” Rubenstein v. Royal Ins. Co., 694 N.E.2d 381, 388 (Mass. App. Ct. 1998). While “all sums” is deemed to be the majority rule, fewer than a dozen states have specifically applied this doctrine.
“Pro rata” coverage is the alternate approach to coverage. Most courts that employ the “pro rata” approach allocate an insurer’s indemnity obligations on a pro rata basis by the insurer’s time on the risk. For example, if an insurer has a six-year period of coverage and the exposure period is thirty years, the insurer would be responsible for one-fifth of the damages, up to the limits of its policies. Alternately, some courts apply pro rata based upon each insurer’s respective percentage of the total available limits. See Owens-Illinois, Inc. v. United Ins. Co., 650 A.2d 974 (N.J. 1994).
With respect to our local jurisdictions, Kansas has rejected “all sums” and adopted a pro rata approach based on time on the risk. Atchison, Topeka & Santa Fe Ry. Co. v. Stonewall Ins. Co., 71 P.3d 1097 (Kan. 2003). Illinois accepts the “all sums” approach (Zurich Ins. Co. v. Raymark Indus. Inc., 514 N.E.2d 150 (Ill. 1987)), but there is a split amongst the intermediate appellate courts as to whether there should be pro rata allocation before reaching excess policies where there are time periods in which the claimant was uninsured or self-insured. Cf. Outboard Marine Corp. v. Liberty Mut. Ins. Co., 283 Ill.App.3d 630, 642, 670 N.E.2d 740 (Ill. App. 2d Dist. 1996) (pro rata required) and Caterpillar, Inc. v. Century Indem. Co., 2011 WL 488935 (Ill. App. 3d Dist. Feb. 1, 2011) (all sums required).
CHOICE OF LAW
Lloyd’s sold excess insurance policies to Doe Run covering policy years 1952-61. During this time frame, Doe Run was headquartered in New York City and had mining operations in several states. Lloyd’s Reply Brief, 2013 WL 1614613, *1. Doe Run’s broker was located in New York. Id. The trial court found that New York law governed. Choice of law was critical to this case, because New York does not accept the “all sums” approach, instead applying pro rata allocation. See Mt. McKinley Ins. Co. v. Corning, Inc., No. 602454/02 (N.Y. Supreme Ct. Sept. 7, 2012).
The Court of Appeals reversed on this issue, finding that the six mining sites at issue were located in Missouri, and that this being the “location of the risk,” Missouri law should apply. This appears to be a strained interpretation of choice of law rules. At the time the policies were issued, in New York, they covered Doe Run’s world-wide risks, including mining operations located in New York, Pennsylvania, Texas, Montana, Louisiana, Missouri, and foreign countries including Canada, Algeria, Morocco, Argentina, and Peru. Lloyd’s Reply Brief, 2013 WL 1614613, *1, *25. Lloyd’s attempted to distinguish these policies from those discussed in Crown Center Redevelopment Corp. v. Occidental Fire & Cas. Co., 716 S.W.2d 348 (Mo. App. W.D. 1986), in which each insured risk site was specifically identified in the policy, because the Doe Run policies did not specifically identify any particular Missouri sites of operations, just Doe Run’s general corporate operations world-wide. Lloyd’s Reply Brief, 2013 WL 1614613, *25. We tend to agree with Lloyd’s that the Court’s finding that Missouri had the “most significant relationship” with the policies is strained.
DOE RUN REVERSES EASTERN DISTRICT COURT OF APPEALS’ PRIOR HOLDING ON PRO RATA ALLOCATION
The Doe Run case is notable because it marks the first Missouri case to apply “all sums with stacking,” a doctrine being pioneered in California, as well as being a reversal of this very court’s prior application of pro rata allocation. See Continental Cas. Co. v. Med. Protective Co., 859 S.W.2d 789, 792 (Mo. App. E.D. 1993) (“Where the loss is caused not by a single event but by a series of cumulative acts or omissions, we believe the fair method of apportioning the loss among consecutive insurers is by application of the ‘exposure theory’ utilized in cases of progressive disease such as asbestosis. . . . Recognizing that words such as ‘bodily injury’ and ‘occurrence’ as used in typical insurance policies covering an accident or common disease, become inherently ambiguous when applied to a cumulative, progressive disease, the court held that proration of the loss among consecutive insurers should be based upon the period each was exposed to potential liability”). The Doe Run opinion does not reference this decision or explain its departure from the court’s earlier approach.
As the Missouri Supreme Court has not yet ruled on “all sums” versus “pro rata” allocation, the only case law on “all sums” versus pro rata allocation is two conflicting opinions from the same intermediate court of appeals. There are additional interesting issues presented by Lloyd’s appeal, including the arguments regarding vexatious refusal to pay, particularly in light of the unsettled state of Missouri law on “all sums” versus pro rata and this very court’s prior ruling in support of pro rata allocation. We expect that Lloyd’s will pursue transfer to the Supreme Court, and will update with any news on that front.
Recent Missouri Western District Appellate Case Restores Prior Law that Authorizes Exclusion of Co-Employee Claims Under Auto Liability PoliciesMarch 13, 2013 | Angela Higgins
Auto liability carriers often field claims by one employee of an insured policyholder against another employee. It has long been the rule in Missouri that one employee is not liable to the other except for intentional conduct or in extraordinary circumstances, which generally precludes coverage for co-employee claims under auto liability policies. The Western District Court of Appeals briefly introduced a wrinkle to this well-established jurisprudence, which appears to have righted itself in the recent case of Hansen v. Ritter, 375 S.W.3d 201 (Mo. App. W.D. 2012).
An employer has a nondelegable duty to provide a reasonably safe work environment for employees. Kelley v. DeKalb Energy Co., 865 S.W.2d 670, 672 (Mo. banc 1993). Because that duty cannot be delegated to individual employees, suits against co-employees for breach of the duty to maintain a safe working environment are generally barred by the workers’ compensation remedy. State ex rel. Taylor v. Wallace, 73 S.W.3d 620, 621 (Mo. banc 2002). The only exception to the workers’ compensation law’s bar on claims against co-employees for injuries that result from an affirmative act by a co-employee that causes injury, beyond mere negligence. Id. at 621-22. (Taylor was subsequently overruled only to the extent of its holding that the workers’ comp bar defense was not waived if not raised at the first opportunity. See McCracken v. Wal-Mart Stores East, LP, 298 S.W.3d 473, 478-79 (Mo. banc 2009)). The contours of the “something more” required to hold one liable to a co-employee are not entirely clear, but the standard has been repeatedly affirmed by the courts. See, e.g., Burns v. Smith, 214 S.W.3d 335 (Mo. 2007). Negligent driving is not “something more.” Taylor, supra.
That is the well-established regulatory scheme everywhere but in the Western District, apparently. In Robinson v. Hooker, 323 S.W.3d 418 (Mo. App. W.D. 2010), the Western District held that the workers’ compensation statute, Mo. Rev. Stat. § 287.010 et seq., did not bar co-employee claims. Robinson v. Hooker found that the workers’ compensation statute was required to be strictly construed following amendments in 2005. Because the statute only expressly refers to “employers,” not “co-employees,” as being entitled to the benefit of the comp bar, the Western District declined to bar co-employee claims.
Notably, no other appellate district followed the Western District’s lead, and the court has reversed itself in substance, if not expressly, in Hansen v. Ritter, 375 S.W.3d 201 (Mo. App. W.D. 2012). In backtracking from Robinson v. Hooker, the Hansen court observed that “[t]hough Robinson abrogated affording immunity under the Act to co-employees alleged to have breached an employer’s non-delegable duty, Robinson did not comment on the contours of a co-employee's common law liability for the negligent injury of fellow employees in the workplace.” Id. at 207. The court then returned to the pre-Robinson framework that barred co-employee claims by finding that employers had non-delegable duties to provide a safe workplace at common law, and that most co-employee claims therefore were not cognizable under the common law of Missouri.
“[T]he pressing question is whether the negligent co-employee is also liable. At early common law, the answer to this question was no. The ‘nondelegable duties are duties of the employer to his employees and not of fellow servants to each other.’” Hansen, 375 S.W.3d at 210. “[W]e conclude that at common law, a co-employee who has violated an independent duty to an injured employee will be ‘answerable to such person for the consequences of his negligence,’ . . . . However, a co-employee’s independent duties owed to fellow employees do not include the duty to perform the employer’s non-delegable duties.” Id. at 213-14.
After an extensive attempt to distinguish Robinson from the abundant case law barring co-employee claims under the workers’ compensation act, Hansen ultimately accepted the “something more” test for co-employee liability. Id. at 216. While Hansen goes to great lengths to maintain that Robinson correctly abolished the workers’ compensation bar to co-employee claims, the end result of Hansen is a bar to most co-employee claims under the same standards, using the same terminology, as the pre-Robinson case law. To date, no reported cases cite either Robinson or Hansen. While this has been a confusing episode in the Western District, the end result appears to be no functional alteration to existing law on co-employee claims, and because such claims are not viable under Missouri law, there should be no coverage under auto liability policies unless such policies expressly provide coverage applicable to the circumstances.
Of note to auto liability insurers, the bar on co-employee claims does not create liability under the employer’s uninsured motorist coverage, and this well-established jurisprudence should remain intact following Robinson and Hansen. There are two principal cases that support the denial of UM claims by co-employees, Zink v. Allis, 650 S.W.2d 320 (Mo. App. W.D. 1983) and Seymour v. Lakewood Hills Association, 927 S.W.2d 405 (Mo. App. E.D. 1996).
In each of these cases, the injured employee was a passenger in a company-owned vehicle. In each case, the auto liability policy held by the employer contained a fellow-employee exclusion clause, excluding claims by an employee for injuries caused due to the actions of another employee, mirroring the workers’ comp bar on such claims.
In Zink, the plaintiffs were the survivors of an employee killed while a passenger in a company truck driven by another employee. See 650 S.W.2d at 321. The substance of the plaintiffs’ argument was that, due to a fellow-employee exclusion in the liability policy, the negligent driver was “uninsured” for purposes of determining whether that policy's uninsured motorist coverage was applicable. Id. at 322.
The Zink court found, based upon policy language, that liability under the uninsured motorist policy was contingent on whether the vehicle in which the decedent was riding was insured, not whether the driver was insured. 650 S.W.2d at 321. Because a liability policy covered the vehicle in question, the plaintiffs could not avail themselves of the uninsured motorist coverage. Id. at 322–23.
The Zink court then addressed the issue of whether the fellow-employee exclusion within the policy caused that policy to fail to meet the mandatory minimum requirements of the uninsured motorist statute. The court found that a fellow-employee exclusion is rational, reflecting the different responsibilities owed by an employer to its employees, as opposed to those owed to the general public. Id. at 323–24. That exclusion is premised, at least in part, upon the employee’s protection under the workers’ compensation statutes, id., so the continued viability of the longstanding bar on co-employee claims is important to the enforcement of co-employee exclusions in liability policies.
In Seymour, the plaintiff was an employee injured as a passenger on a trash truck driven by another employee, when that vehicle struck a tree. The plaintiff claimed against the employer’s uninsured motorist coverage. The trial court sustained the insurance company’s motion for summary judgment, premised upon the grounds that the uninsured motorist insurance policy contained a “fellow-employee” coverage exclusion. 927 S.W.2d at 407. On appeal, the Eastern District initially followed the approach of Zink, noting that the vehicle was not truly an uninsured motor vehicle, as it was covered by a liability policy. Id.
The Seymour court then made a much broader statement, declaring that “uninsured motorist coverage need not extend to ‘any liability on account of bodily injury or death of an employee of the insured while engaged in the employment, other than domestic, of the insured.’” Seymour, 927 S.W.2d at 408. As the exclusion within the policy (a “fellow employee” exclusion) was authorized under § 303.190.5 (Missouri’s financial responsibility law), the court held that the exclusion was not in violation of public policy. Id.
Again, the rationale for approving co-employee exclusions in liability policies is substantially derived from what, prior to Robinson, appeared to be well-settled law barring co-employee claims, so Hansen is a puzzling but welcome decision. We suspect that Robinson and Hansen will have no practical impact upon the administration of co-employee claims under auto liability policies. We will, as always, continue to monitor and report upon developments in this area of Missouri law.
This is the fourth and final post in our series about Missouri’s equitable garnishment statute. As discussed in our prior posts on this topic, § 379.200 is currently applied in circumstances never intended by the legislature or the early case law, contrary to well-established fundamentals of equity jurisprudence, and with tremendous burdens falling primarily upon auto liability insurers who operate in the state. The courts have gone far afield from the express intent of the statute to allow judgment creditors to resort to equitable garnishment only if garnishment at law is not available, and equitable garnishment proceedings have become absolutely routine in Missouri. Is there any hope of escaping this misguided statutory regime? We think there might be.
As an initial matter, as discussed more fully in the first post on this topic, the circumstances that necessitated an equitable garnishment procedure no longer exist as a result of revisions to the insurance statutes in 1929. To the extent that carriers operating in the state have influence with state legislators, it is worth advocating for repeal of § 379.200, because it is no longer necessary and has been grossly misused and misunderstood for decades. Missouri and Alabama are the only states still utilizing a routine equitable garnishment cause of action for purposes of collecting insurance policy proceeds, and judgment creditors are certainly able to accomplish the same end in every other state without need of this antiquated statute. Other jurisdictions allow equitable garnishment actions under the common law in circumstances truly comporting with the requirements of equity, where there is no adequate remedy at law, which need not change in Missouri.
Appellate review is also key. Surprisingly, we could locate no appellate briefing, let alone reported case law, in which any party has argued that the history of the statute and/or equitable requirements bar virtually all actions for equitable garnishment. As best we can determine, State ex rel. Anderson v. Dinwiddie, 224 S.W.2d 985, 987 (Mo. banc 1949), which held that the predecessor to § 379.200 was not the sole and exclusive means to garnish insurance policy proceeds, has never been cited on appeal. Lajoie v. Central West Cas. Co., 71 S.W.2d 803, 812 (Mo. App. 1934), which held that the purpose of the equitable garnishment statute was “only to furnish some adequate remedy where the remedy at law was inadequate or did not exist, so that, by the two, the entire field would be covered,” has likewise never been cited. The same is true for other cases cited in our previous posts. These remain good law, but “lost” in the sense that they have not been presented on appeal. This statute has long been so poorly understood by practitioners and by the courts that there appears to be an opportunity to educate the courts regarding its real purpose and history.
Litigants must argue at every opportunity that the availability of an adequate remedy at law deprives the court of subject matter jurisdiction over equitable garnishment claims. Lack of subject matter jurisdiction is never waived, and may be raised by any party at any time whenever it appears that the court lacks jurisdiction of the matter. We would like to see more carriers filing routine motions to dismiss in response to equitable garnishment actions, and following up on these issues on appeal.
Moreover, Missouri has available a process for interlocutory appeal that could be well-suited to obtaining review of the equitable garnishment statute. A writ of prohibition restrains a judge from acting in excess of his or her jurisdiction, and is filed with the court of appeals in the district in which the circuit court is located. In our experience, writs arising out of denials of dispositive motions are particularly well-suited for review on a writ of prohibition. Initially, the process is less formal than an appeal, and is governed by Rules 84.24 and 97.03. The writ petition is accompanied by suggestions in support and a writ summary, but no special binders, record on appeal, or other formalities are required.
There is no deadline to file a writ petition following the interlocutory ruling to be challenged, though it is customary to do so within thirty days. Each appellate division has a writ panel that serves, in rotation, for 3-4 weeks at a time, comprised of one judge designated as the presiding judge and one additional judge. If a writ petition is granted, a third judge is added, to compose the panel. The Eastern District has a “writ attorney” who can assist in answering questions about the process, and the Western District’s staff attorneys are also quite helpful.
Rulings on writ petitions can come down very quickly, often within two weeks. The initial ruling is as to whether there appears to be merit to the writ petition. If the preliminary writ is granted, a full appellate briefing schedule is commenced, with the party supporting the ruling acting on behalf of the court in defending the ruling. Denials of preliminary writs are not reported, and do not prejudice the ability to present the same issues on appeal after entry of judgment. If the Court of Appeals denies a writ petition, it is possible to file directly with the Missouri Supreme Court, under the same procedure.
Ultimately, it is unclear if the Missouri appellate courts would be receptive to the arguments against the routine use of the equitable garnishment action presented in this series. The unusual “lost years” history of the courts’ and practitioners’ misunderstanding of this statute, coupled with the fact that each of the early cases cited in this series remains good law, seem to present a promising opportunity to educate the courts and obtain relief from this antiquated statute. We look forward to seeing an insurer present these issues on appeal.
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The BSCR Insurance Blog examines topics and developments of interest to insurance carriers, with a particular focus on Missouri and Kansas law. Learn more about the editor, Angela M. Higgins, and our Insurance practice.
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