Imagine the intrepid archaeologist who reaches through a century’s worth of cobwebs to grab a long-sought relic, only to be chased from the temple by a rolling stone ball of doom. You will have some appreciation for the absurdity of Missouri’s equitable garnishment action, a curious relic of an era that predates modern insurance law, and which is fraught with peril for insurers.
Missouri’s equitable garnishment statute became obsolete shortly after its passage. It does not join the list of humorous obsolete statutes like the one that makes it illegal to transport a wild bear down the highway, however. Plaintiffs continue to file equitable garnishment actions, and in a future post we will consider the many ways in which this proceeding bedevils insurers.
Mo. Rev. Stat. § 379.200 was enacted in 1925, in substantially the same form as it exists today. It provides:
Upon recovery of a final judgment against any person…for loss or damage on account of bodily injury or death…if the defendant in such action was insured against said loss or damage at the time when the right of action arose, the judgment creditor shall be entitled to have the insurance money, provided for in the contract of insurance…applied to the satisfaction of the judgment, and if the judgment is not satisfied within thirty days after the date when it is rendered, the judgment creditor may proceed in equity against the defendant and the insurance company to reach and apply the insurance money to the satisfaction of the judgment.
Equitable garnishment did have a purpose when first codified. One can only garnish a contract (at law) if the contract exists and is enforceable at the time of garnishment. Linder v. Hawkeye-Security Ins. Co., 472 S.W.2d 412, 415 (Mo. 1971). In the early days of automobiles and auto liability policies, it was not unusual for “craftily worded” insurance policies and collusive recession of policies to preclude garnishment at law. See Schott v. Continental Auto Ins. Underwriters, 31 S.W.2d 7, 11-12 (Mo. 1930). For example, policies would be worded so as to pay only after the insured paid the judgment (precluding garnishment in the event of an insolvent insured), or, after an accident, the insurer would cancel the policy, leaving nothing for the judgment creditor to garnish. See id.
Early auto insurance policies often provided that only the insured, and not the injured party, could sue the insurer to recover sums due under the policy (so-called “no action” clauses). See Schott, 31 S.W.2d at 11. Policies often also provided that they were payable only following trial on the issues of liability and damages, and that the policy would not be payable upon settlement or entry of a consent judgment. Id.
Only four years after passing the original form of Section 379.200, however, Missouri passed comprehensive insurance laws, including what is now Section 379.195, which fixes the insurer’s liability at the time of the accident, regardless of whether the policy remains in force or whether the insured pays anything toward a judgment. The problem for which 379.200 was enacted was fixed. And yet equitable garnishment lives on.
One of the many absurdities associated with the equitable garnishment action is the “lost years” period in which courts ruled that equitable garnishment was the only way to collect on an insurance policy, seemingly unaware of early and still good Missouri law interpreting Section 379.200 and the effect of Section 379.195. Missouri’s equitable garnishment jurisprudence was long mired in an inexplicable series of mistaken opinions that concluded that the equitable garnishment statute provided the sole and exclusive means for a judgment creditor to obtain insurance policy proceeds. See, e.g., Zink v. Employers Mutual Liability Ins. Co. of Wisconsin, 724 S.W.2d 561, 564 (Mo. App. W.D. 1986) (holding that § 379.200 is the judgment creditor’s sole remedy against the insurer, precluding a garnishment action under Chapter 525); accord Wood v. Metropolitan Property & Casualty, 10 S.W.3d 571, 573 (Mo. App. 2000).
The federal courts relied on these cases to conclude that insurance policies, alone of all contracts, could not be garnished under Missouri law, but could only be collected via the equitable garnishment remedy. See Glover v. State Farm Fire and Cas. Co., 984 F.2d 259, 260 (8th Cir. 1993); overruled by implication by Johnston v. Sweany, 68 S.W.3d 398, 404 (Mo. banc 2002).
For decades, early decisions of the Missouri Supreme Court and courts of appeals that construed the equitable garnishment statute appear to have been lost; entirely overlooked were their holdings that garnishment at law is always an appropriate means by which a judgment creditor may collect on an insurance policy and that equitable garnishment is a procedure of last resort when garnishment at law has failed. The Missouri Supreme Court had expressly held that the predecessor to § 379.200 was not the sole and exclusive means to garnish insurance policy proceeds. See State ex rel. Anderson v. Dinwiddie, 224 S.W.2d 985, 987 (Mo. banc 1949). The remedy afforded by Section 379.200 “did not operate to exclude the existing legal right by execution and garnishment” at law. Lajoie v. Central West Cas. Co., 71 S.W.2d 803, 812 (Mo. App. 1934). “The act does not require that the judgment creditor shall proceed in equity or not at all.” Id. at 813. The equitable garnishment statute did not supplant existing legal remedies to reach insurance policy proceeds; “[i]t was its purpose 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.” Id.
These cases (which remain good law) were apparently overlooked for decades. It was not until 2002 that the Missouri Supreme Court resolved the confusion of the “lost years” by holding that an insurance policy is a contract and garnishment at law is, of course, available to a judgment creditor seeking liability insurance proceeds. See Johnston v. Sweany, 68 S.W.3d 398, 404 (Mo. banc 2002). Many misconceptions and misapplications of the equitable garnishment law remain, however. In our next post on the equitable garnishment action, we will examine the lost understanding of the “equitable” requirement for the invocation of this remedy.