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Missouri Supreme Court Affirms Prospective Only Application of Amendments to Sect. 537.065 RSMo Providing for Notice to the Insurer and Intervention as a Right

August 28, 2019 | Lisa Larkin

The Missouri Supreme Court recently held that amendments to RSMo. § 537.065 requiring a valid § 537.065 contract and written notice to insurers for an opportunity to defend did not apply retroactively to a case where the plaintiff and tortfeasor executed the § 537.065 contract before the effective date of the amended statute. The dissent argued that the amended statute should apply retroactively despite the timing of § 537.065 contract in this case because the amended statute was not a new enactment, but rather a continuation of the existing law.

In Desai v. Seneca Specialty Insurance Co., 2019 WL 2588572, No. SC 97361 (June 25, 2019), Seneca sought to intervene in a lawsuit filed by Neil and Heta Desai against Seneca’s insured, Garcia Empire, LLC. In October 2014, Neil Desai suffered a personal injury while being escorted from a Garcia Empire establishment. The Desais filed suit in May 2016, and Garcia advised Seneca of the suit. Garcia rejected Seneca’s offer to defend Garcia subject to a full and complete reservation of rights regarding coverage. In November 2016, the Desais and Garcia entered into a contract under § 537.065 wherein the Desais agreed to limit recovery of any judgment against Garcia to Garcia’s insurance coverage. 

The parties tried the case on August 17, 2017, and the court entered judgment in favor of the Desais and against Garcia on October 2, 2017. Within 30 days of the entry of judgment, Seneca filed a motion to intervene as a matter of right, arguing it was entitled to receive notice of the § 537.065 contract between Garcia and the Desais and to intervene as a matter of right in the lawsuit based on the August 28, 2017, amendments to § 537.065. Seneca argued the rights afforded to insurers under the amended statute should apply to it and its efforts to intervene in the lawsuit.

The trial court denied Seneca’s motion to intervene, holding the legislature did not expressly provide for retroactive application of the August 2017 amendments to § 537.065 to cases where the parties executed the § 537.065 contract before the amendments. As discussed in our previous blog post found here, the Court of Appeals for the Western District of Missouri affirmed.

The Missouri Supreme Court began its analysis by looking to the language of the 2017 amendments. The amended statute permitted the same type of contract where the plaintiff agrees that, in the event of a judgment against the tortfeasor, the plaintiff will collect money solely from the tortfeasor’s insurer or other specified assets, rather than directly from the tortfeasor. The amended statute, however, included two notable additional requirements. First, it provided that before creation of such a contract between the plaintiff and a tortfeasor, the insurer must be given the opportunity to defend the tortfeasor without reservation and refuse to do so. Second, the amended statute provided that before a judgement may be entered against a tortfeasor after such tortfeasor “has entered into a contract under this section” (emphasis added), the insurer must be provided with written notice of the contract and be given the opportunity to intervene as a matter of right.

The key issue before the Supreme Court in terms of whether the amended statute applied in this case was to determine the meaning of “under this section.” First, the court looked to the relevant differences between the former and amended statutes. Then, it looked to whether the amended statute was merely a continuation of the former statute. This was because any change to the law that could be said to be a continuation of the prior law would not be a new enactment and could be applied retroactively to § 537.065 contract executed before the amendments.

The court found that the amended statute and the former statute both permitted the same type of contracts. Because the amended statute contained the two additional requirements noted above, i.e., that a valid § 537.065 contract exists, and that the insurer be given written notice of the execution of the contract and the opportunity to intervene before a judgment is entered, “under this section” cannot refer to the statute’s prior version. The Desais and Garcia could not have “entered into a contract” pursuant to a prerequisite and requirements that were not yet law. Thus, because the Desais and Garcia executed their contract under the provisions and requirements of the former statute, the amended statute was an inapplicable new enactment. It is important to note that the Supreme Court did not question the validity of the amended statute to any case where the § 537.065 contract was entered into after August 28, 2017 (the effective date of the amendments). 

The dissent argued that the 2017 amendments simply added a condition precedent to the entry of judgment after a tortfeasor has entered into a § 537.065 contract and did not affect the substantive terms of any contract entered into under that section. It argued that “under this section” referred to both the amended and prior versions of the statute because the revisions simply gave an insurer the right to written notice and an opportunity to intervene. The revisions did not purport to give an insurer an automatic right to set aside a judgment entered or any other rights beyond what any intervenor would have.

As was the case with the Western District’s prior opinion in this case, this Supreme Court opinion provides an excellent road map for the court’s likely approach to the issue of retroactive vs. prospective application of statutory amendments of not only this statute, but others under Missouri law.

* Kelly M. “Koki” Sabatés, Summer Law Clerk, assisted in the research and drafting of this post. Sabatés is a 3L student at the University of Missouri-Columbia.


Related Services: Insurance, Appellate and Commercial
Attorneys: Lisa Larkin

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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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