Allen v. Bryers and Atain Specialty Insurance Company, — S.W.3d —, 2016 WL 7378560 (Mo. banc, December 20, 2016)
In a recent opinion, the Missouri Supreme Court addressed the timing for an insurer’s intervention in a case involving a Section 537.065 between the plaintiff and an insured, as well as the more-than-bare-bones showing required for a finding of insurer bad faith.
In the underlying action, plaintiff Allen obtained a $16 million personal injury award against defendant Bryers, the property and security manager for an apartment complex in Kansas City, after defendant’s handgun discharged and severely injured plaintiff while the plaintiff was on premises. The defendant’s insurer informed defendant that there may not be coverage under the property owner’s policy given the nature of the altercation and injury. The insurer reserved the right to deny coverage and then filed a declaratory judgment action in federal district court to determine coverage issues.
Shortly thereafter and while the declaratory judgment action was pending, plaintiff sent the insurer a letter demanding the policy limits ($1 million) in exchange for releasing all claims against defendant and the insurer. Upon the insurer’s refusal to settle for the policy limits, the plaintiff and the defendant entered into a Section 537.065 agreement, which allows a claimant and a tortfeasor to contract to limit recovery to insurance coverage. The plaintiff then filed suit against defendant Bryers. The insurer informed Bryers that it had retained counsel on his behalf under a reservation of rights to deny coverage, but Bryers refused to accept the insurer’s reservation of rights and counsel appointment. Soon thereafter, defendant Bryers consented to the entry of judgment against him consistent with the Section 537.065 agreement.
After entry of judgment, the insurer filed a motion to intervene for the limited purpose of seeking a stay of the personal injury action until the declaratory judgment action was resolved and to litigate the coverage issues. It also asserted that an inherent conflict of interest existed between Bryers and the insurer. The circuit court denied intervention, finding that because the insurer denied any and all coverage, it had no standing to contest the Section 537.065 agreement. The circuit court then held a bench trial, at which Bryers offered no evidence and presented no defense, and entered judgment for plaintiff in the amount of $16 million. After the judgment became final, the plaintiff filed an execution/garnishment/sequestration application with the insurer as garnishee.
In the garnishment proceedings, the insurer again denied Bryers was entitled to indemnity and asserted several other defenses, including that the Section 537.065 agreement was the result of fraud or collusion, that the judgment was unreasonable, that Bryers violated his duties under the policy, and that it had not acted in bad faith in handling the underlying claim. Then, almost a year after the $16 million judgment became final, the insurer filed a second motion to intervene and a motion to set aside the underlying tort judgment on the basis of fraud. The garnishment court overruled both motions, entered summary judgment in plaintiff’s favor and ordered the insurer to pay $16 million, stating the amount above the policy limits was appropriate because the insurer had breached its duty to defend and had failed to settle within the policy limit.
In addressing whether there was any circuit court error in refusing to allow the insurer to intervene, the Supreme Court noted the insurer had the right to appeal the circuit court’s initial denial of its application to intervene when the final judgment was entered in the underlying tort action. Insurer did not do so and any circuit court error in denying that first motion was abandoned. The second motion to intervene, filed almost a year after the underlying tort judgment was entered, was untimely as the circuit court lost jurisdiction over this matter 30 days after entry of judgment. Insurer could not have filed an authorized after-trial motion to extend the circuit court’s jurisdiction because it was not a party to the action.
As to the insurer’s motion with the garnishment court to set aside the underlying tort judgment because it was the result of fraud, collusion, and misrepresentation, the Supreme Court noted the civil procedure rules allow such a motion to be filed only by parties, which the insurer was not. The insurer failed to secure intervention in the underlying tort action on two separate occasions and never became a party to the suit.
As to the garnishment action, the Supreme Court found the insurer had wrongfully refused to defend Bryers. Once the insurer unjustifiably refused to defend or provide coverage, then the insured was free to enter into the agreement with the plaintiff to limit his or her liability to the insurance policy limits. The Court held the insurer had an opportunity to manage and control the underlying tort action but declined to do so at its own risk. As a result, the insurer was bound by the result of the underlying litigation and cannot re-litigate any facts that were actually determined in the underlying case and were necessary to the judgment.
Finally, as to the insurer’s claim that the $16 million award in the garnishment action was excessive, the Court found that, while the garnishment court found the insurer had refused to defend and refused to settlement, it made no finding that the insurer had done so in bad faith. Bad faith requires more than just an erroneous denial of coverage. Rather, bad faith in this context is the intentional disregard of the financial interest of the insured in the hope of escaping the responsibility imposed upon the insurer by its policy. Because the garnishment court did not make any explicit finding that the insurer had acted in bad faith, it erred in awarding the full amount of the underlying tort judgment, and plaintiff was entitled only to the policy limits of $1 million.