Blog Archives

  • Missouri Supreme Court Limits Personal Jurisdiction Over Businesses In Missouri

    The Supreme Court of Missouri recently restricted the extent to which Missouri courts have general personal jurisdiction over corporations. Plaintiffs can no generally longer use Missouri courts to sue out-of-state companies that operate significant portions of their business in Missouri for suits unrelated to Missouri (albeit relatively small portion in relation to their overall operations) even if they have registered agent in Missouri. A copy of the Missouri Supreme Court’s decision in State ex rel. Norfolk Southern Railway Company v. Dolan can be found here.

    The plaintiff sued Norfolk Southern Railway Company, a Virginia corporation, in St. Louis County, Missouri. The plaintiff was an Indiana resident, seeking recovery for a personal injury that occurred in Indiana. The action was unrelated to Missouri, but the plaintiff argued, among other things, that: (1) Norfolk Southern’s substantial and continuous contacts in Missouri were sufficient to establish general personal jurisdiction; and (2) Norfolk Southern consented to personal jurisdiction by complying with Missouri’s foreign corporation registration statutes. The Court soundly rejected the plaintiff’s arguments in the 6-0 decision.

    In Daimler AG v. Bauman, 134 S. Ct. 746 (2014), the U.S. Supreme Court clarified that under the Due Process Clause a state may only exercise general jurisdiction (personal jurisdiction over a defendant for actions unrelated to the defendant’s activities in the state) over a corporate defendant in three situations: (1) when the corporation is incorporated in that state; (2) when the corporation’s principal place of business is in that state; or (3) in exceptional circumstances, when the corporation’s activities are “so substantial and of such a nature as to render the corporation at home in that State.” To determine whether a corporation is “essentially at home,” the court must appraise the corporation’s nationwide and worldwide activities and determine how the forum activities compare. Continuous and systematic business activities in a state are not enough for general personal jurisdiction when those activities only comprise a small portion of the defendant’s business overall.

    Following Daimler, the Missouri Supreme Court found that Norfolk Southern’s $232 million in Missouri revenue, 590 Missouri employees, and 400 miles of Missouri railroad tracks were not enough to establish general jurisdiction in Missouri. The Court noted that despite these substantial operations, Norfolk Southern’s Missouri business only accounts for approximately 2 percent of its employees, 2 percent of its revenue, and 2 percent of the tracks it owns or operates. Norfolk Southern had more substantial operations in several other states, so it could not reasonably be considered “at home” in Missouri.

    The court rejected plaintiff’s argument that Norfolk Southern consented to personal jurisdiction over any case filed against it in Missouri when it complied with Missouri’s foreign corporation registration statutes to do business in the state of Missouri and appointed a registered agent for service of process. The court stated that a “broad inference of consent based on registration would allow national corporations to be sued in every state, rendering Daimler pointless.” The court concluded that merely registering in a state does not open a corporation to lawsuits unrelated to that state.

  • New Law in Missouri Requires Uninsured Motorists to Forfeit Recovery of Noneconomic Damages Under Certain Circumstances

    Yesterday, the Missouri Legislature overrode Governor Jay Nixon’s veto of HB 339, which requires uninsured motorists to forfeit recovery of non-economic damages under certain circumstances. The new law, now section 303.390 of the Missouri Revised Statutes, prohibits an uninsured driver who is the owner of the vehicle or a driver operating a vehicle with or without permission who is uninsured from collecting for non-economic damages in a civil action against an insured motorist alleged to be at fault for an accident. The provisions do not apply to an uninsured driver who has lost his or her insurance coverage for failure to pay unless the notification of termination or non-renewal was provided at least six months prior to the accident. Reductions in damage awards based on the new law will not be disclosed to the trier of fact.

    The limitation does not apply to passengers in an uninsured driver’s vehicle and does not limit the recovery of benefits provided or economic losses. Recovery of non-economic damages in instances where an insured driver who is at fault because of operating a vehicle while under the influence of drugs or alcohol or who is convicted of involuntary manslaughter or second degree assault will still be allowed under the new law.

    If held constitutional by the courts of Missouri, the new law will dramatically limit recovery for injuries in cases to which it applies. Practitioners would be well advised to conduct discovery on these issues. Further, it remains to be seen whether the new law will require juries to complete a special verdict form allocating economic and non-economic damages similar to special verdicts required in medical malpractice cases in Missouri.

    The full text of Section 303.390 reads:

    1. An uninsured motorist shall waive the ability to have a cause of action or otherwise collect for non-economic loss against a person who is in compliance with the financial responsibility laws of this chapter due to a motor vehicle accident in which the insured driver is alleged to be at fault. For purposes of this section, the term “uninsured motorist” shall include:

    (1) An uninsured driver who is the owner of the vehicle;

    (2) An uninsured permissive driver of the vehicle; and

    (3) Any uninsured non-permissive driver. Such waiver shall not apply if it can be proven that the accident was caused, in whole or in part, by a tort-feasor who operated a motor vehicle under the influence of drugs or alcohol, or who is convicted of involuntary manslaughter under subdivision (2) of subsection 1 of section 565.024, or assault in the second degree under subdivision (4) of subsection 1 of section 565.060.

    2. The provisions of this section shall not apply to an uninsured motorist whose immediately previous insurance policy meeting the requirements of section 303.190 was terminated or non-renewed for failure to pay the premium, unless notice of termination or non-renewal for failure to pay such premium was provided by such insurer at least six months prior to the time of the accident.

    3. In an action against a person who is in compliance with the financial responsibility laws prescribed by this chapter by a person deemed to have waived recovery under subsection 1 of this section:

    (1) Any award in favor of such person shall be reduced by an amount equal to the portion of the award representing compensation for non-economic losses;

    (2) The trier of fact shall not be informed, directly or indirectly, of such waiver or of its effect on the total amount of such person’s recovery.

    4. Nothing in this section shall be construed to preclude recovery against an alleged tort-feasor of benefits provided or economic loss coverage.

    5. Passengers in the uninsured motor vehicle are not subject to such recovery limitation.

    For more information, please contact your Lashly & Baer attorney or Patrick E. Foppe at (314) 621-2939.

     

     

     

     

  • No Coverage for Penalties Under the Telephone Consumer Protection Act

    Karen S. Little, L.L.C. brought a class action against HIAR Holdings for violation of the Telephone Consumer Protection Act (“TCPA”) alleging that HIAR violated the act by sending “junk faxes.”  Pursuant to the TCPA, HIAR was potentially liable for statutory damages of $500.00 per fax sent.  Ultimately, Little settled the claim for five million dollars. 

    Columbia Casualty Company refused to defend or indemnify HIAR and filed a declaratory judgment action seeking a judgment holding that it had no obligation to do so.  The trial court, however, found against Columbia and it appealed. 

    On appeal, the Missouri Eastern District Court of Appeals found that there was no coverage.  First, statutory damages under the TCPA are penal in nature and, as penalties, do not constitute “damages” covered by an insurance policy.  The Columbia Casualty policy obligated it to “pay those sums that the insured becomes legally obligated to pay as damages because of [property damage or advertising injury] to which this insurance applies.”  Because the statutory damages under the TCPA were penal in nature they were not “damages” as defined under Missouri law and, therefore, there was no obligation to defend or indemnify HIAR for the claim.

    HIAR argued, however, that it had reached a settlement for somewhere less than the total liability and, therefore, the five million dollars constituted something other than a penalty (the total potential exposure was 6.25 million dollars).  However, even if that was so, the Eastern District Court noted that the exclusion providing that “this insurance does not apply to [property damage or advertising injury] for which the insured has assumed liability in a contract or agreement” and would exclude coverage.  Because HIAR assumed the liability through settlement, this exclusion applied and there was no coverage.

    The case is pertinent to any defendants exposed to statutory penalties imposed under state or federal law.  Depending upon the facts of the case and the statutory language, these statutory awards may well fall outside the definition of damages under Missouri law and, therefore, not fall within the coverage of an insurance policy.

    Columbia Casualty Company v. Little, et al.

  • Nonpermissive Use Exclusion Okay If Included In Definition of Insured, But Not If It Is A Separate Exclusion

    In American Standard Insurance Company of Wisconsin v. Stinson, the Eastern District Court of Appeals addressed the exclusion from coverage of non-permissive users of a motor vehicle.  In this wrongful death case, Son took the car from Father’s auto dealership without Father’s permission.  Son subsequently crashed into a vehicle driven by Ricky Young, who died as a result of the collision.  American Standard insured the vehicle involved in the crash.  The policy at issue defined an insured person as “you or a relative,” but not “any person using a vehicle without the permission of the person having lawful possession.”  American Standard filed a Petition for Declaratory Judgment seeking a declaration of non-coverage on the basis that Son was not a permissive user of the vehicle.  The trial court granted American Standard’s summary of judgment and the wrongful death Plaintiff appealed

    Plaintiff appealed, arguing that the phrase, “any person” as used in the phrase “any person using a vehicle without the permission of the person having lawful possession” was ambiguous.  Plaintiff specifically relied upon the case of Miller’s Classified Insurance Company v. French, 295 SW3d. 524 (Mo. App. Eastern District 2009) in which the Eastern District did find that the phrase “any person,” as used in exclusionary provision of an insurance policy, was reasonably open to different constructions and, therefore, ambiguous.  However, the Eastern District distinguished the instant case by noting that the use of this phrase in the definition of insured was different than the use of the phrase in the exclusionary policy.  An insurance policy is ambiguous when it promises the insured something at one point, but then takes it away at another.  The Eastern District Court of Appeals upheld the trial court’s grant of summary judgment in favor of American Standard, finding that the Son was not an insured person under the policy.  The Eastern District seemed to distinguish French because the use of “any person” in a separate exclusion was different than the use of “any person” in the definition of insured. 

    This appears to be a case where the courts have construed potential ambiguity in favor of an insurance company, rather than against it.  The Eastern District seems to be saying that there is a difference in the analysis of language depending on whether the language is in an insuring provision or an exclusion.  If the alleged ambiguity is contained within the initial grant of coverage, there seems to be less of a chance of finding an ambiguity than where the alleged ambiguous phrase is used in the exclusionary portions of the policy.

    American Standard Insurance Company of Wisconsin v. Stinson

  • Attorneys’ Fees Counted as Damages For Purposes of Punitive Damages Cap

    The Missouri Supreme Court again analyzed portions of the State of Missouri’s 2005 Tort Reform Bill in a recent employment discrimination decision.  In that decision, the Missouri Supreme Court found that attorneys’ fees should be included in the determination of the “net amount of judgment” that is used to calculate the maximum amount of punitive damages pursuant to Section 510.265, RSMo. 

    Section 510.265 limits the amount of punitive damages in most civil cases to the greater of $500,000 or 5 times the net amount of the judgment awarded to the plaintiff against the defendant.  The Missouri Supreme Court ruled that in determining the net amount of the judgment against the defendant, attorneys’ fees should be included.  In other words, actual damages plus any awarded attorneys fees are added together and any appropriate reductions then applied.  This amount is then multiplied by 5 in order to determine the total amount of punitive damages awardable. 

    While punitive damages may not play a significant role in the majority of cases, including attorneys’ fees in the net amount of judgment certainly has the potential to significantly raise the floor on the amount of punitive damages awardable in such cases. 

     Hervey v. Missouri Department of Corrections

  • The Temporary Worker Exception to the Employee Exclusion: In Missouri Referring An Employee Means Furnishing an Employee

    In May 2006, Len Mendenhall interviewed for a job with the Family Center of Farmington, Inc. (“Family Center”).  The Family Center did not hire Mr. Mendenhall, but the Family Center employee who interviewed Mr. Mendenhall informed Jay Walker, the owner of the Family Center, that Mr. Mendenhall would be a good candidate for a job.  Based upon on this recommendation, Mr. Walker hired Mr. Mendenhall to work for him personally at the cattle farm Mr. Walker co-owned with his wife.  Mr. Mendenhall worked at the farm on an as-needed basis and, although he was always paid by the farm, Mr. Walker occasionally asked Mr. Mendenhall to perform tasks for the Family Center.  Mr. Walker also permitted Mr. Mendenhall to use a truck and trailer owned by the Family Center.  This truck and trailer was covered under a Business Automobile Liability Policy (“The Hartford Policy”) provided by Property and Casualty Insurance Company of Hartford and issued to the Family Center.  On March 8, 2007, Mr. Mendenhall was using the Family Center’s truck to haul rock at the farm when the vehicle overturned and he was killed. 

    Mrs. Mendenhall filed a wrongful death suit against the Family Center and the Walkers.  Mrs. Mendenhall dismissed her claim against Mrs. Walker and obtained an $840,000 judgment against Mr. Walker and a $50,000 judgment against the Family Center.  Prior to the judgment, Mr. Walker and Mrs. Mendenhall entered into an agreement pursuant to Section 537.065, RSMo., which provided that any judgment against Mr. Walker would be collected from the proceeds of the Hartford Policy.  Hartford denied any obligation to indemnify Mr. Walker for the claims resulting from Mr. Mendenhall’s death.

    Mrs. Mendenhall subsequently filed an action for equitable garnishment in an attempt to satisfy the $840,000 judgment under the Harford Policy.  The Hartford Policy contained an exclusion from liability coverage for employees of the insured.  The definition of employee specifically included a leased worker, but did not include a temporary worker.  Of importance to the decision is that a “temporary worker” was defined as “a person who is furnished to you to substitute for a permanent ‘employee’ on leave or to meet seasonal or short-term workload conditions.”  The trial court entered summary judgment for Hartford and Mrs. Mendenhall appealed.

    In reversing the decision of the trial court, the Missouri Supreme Court found that the Family Center furnished Mr. Mendenhall to the Walkers for employment.  Therefore, Mr. Mendenhall qualified as a temporary worker and was not considered an “employee” for purposes of the exclusion from liability coverage for employees of the insured.  The Court noted that, in order to furnish an employee, it was not necessary for the Family Center to have an employment or agency relationship with Mr. Mendenhall.  The Court focused on the fact that Mr. Walker did not interview Mr. Mendenhall and relied solely on the Family Center’s referral in making his decision to hire Mr. Mendenhall.  “The Family Center’s referral supplied and provided Mr. Walker with the information he used to hire Mr. Mendenhall on an as-needed basis.  Without the information furnished by the Family Center, a business owned solely by Mr. Walker, Mr. Walker would not have hired Mr. Mendenhall.  It was through the Family Center’s referral that Mr. Mendenhall was ‘furnished to’ Walker as a temporary worker.” 

    As the dissent in this matter noted, this decision has potentially wide-ranging consequences.  First, there is the issue of the Court’s equating the term “refer” with the term “furnish.”  Interpreted broadly, the decision could mean that any time an employee is referred to his or her employer, that employee may qualify as a temporary worker and fall outside of the employee exclusion in a liability policy.  The second issue that arises is whether or not this will inhibit an employee’s ability to obtain a referral from a current or former employer.  Current and former employers may be hesitant to refer employees for fear that they will be deemed to have furnished an employee to another. 

    Finally, under the Missouri Workers’ Compensation Act, “temporary workers” are not covered by their employers’ workers’ compensation insurance.  The finding that employees in situations such as Mr. Mendenhall’s are considered temporary workers for purposes of a liability policy may allow courts to find that they are also temporary workers for purposes of the Missouri Workers’ Compensation Act.  This would mean that they would fall outside the Act and not be eligible for worker’s compensation remedies.  If they are not covered by the Missouri Workers’ Compensation Act, employers may be exposed to tort claims from their “temporary workers.”

    Mendenhall v. Property and Casualty Insurance of Hartford

  • UIM Insurer Allowed to Intervene After Initial Denial of Coverage

    Consumers Insurance Company provided underinsured motorist (“UIM”) coverage to Bradford Charles.  Charles was subsequently injured in a motor vehicle accident with Christina Ranum.  Charles’ attorney subsequently made a UIM claim on the Consumers UIM policy.  Initially, Consumers denied UIM coverage, but subsequently determined that there may be UIM coverage under its policy.

    After Consumers initial denial of coverage, but before its determination that there may be coverage, Charles filed suit against Ranum and entered into a partial settlement whereby Charles agreed to limit his recovery to Ranum’s policy limits without conceding that his damages were limited to that amount.  Immediately after the settlement between Charles and Ranum occurred, Consumers moved to intervene in the action for the purposes of contesting Ranum’s liability and/or Charles’ damages.  Charles did not object to the motion and the trial court allowed Consumers to intervene.  Charles subsequently filed a Motion for Summary Judgment contending that consumers should not be allowed to intervene because it initially denied coverage and, therefore, forfeited any right it had to defend Charles’ allegations against Ranum.  The trial court eventually granted that Motion for Summary Judgment, finding that Consumers had initially denied coverage, but then changed its position.  This, according to the trial court, resulted in Consumers forfeiting its right to intervene.  The trial count then conducted a hearing at which Ranum did not appear to contest Charles’ case and entered a judgment in favor of Charles in the amount of $350,000.  Ranum had only $50,000 in liability coverage.

    The Missouri Court of Appeals for the Western District overturned the trial court’s judgment and found that Consumers should have been allowed to intervene.  In doing so, it distinguished between first party and third party claims.  The trial court acknowledged that an insurer may forfeit all of it rights under the contract should it deny coverage on a third party claim.  However, an insurer’s right to intervene in a cause of action when there is litigation which may affect a potential first party claim such as UIM coverage, the insurer’s right to intervene arises out of the Missouri Rules of Civil Procedure rather than the insurance contract.  Therefore, even after an initial denial of coverage, Consumers claim that coverage may apply was sufficient to establish that Consumers had an interest in the litigation to justify its intervention.

    This case is important for a couple of reasons.  First, in a potential first party claim situation, an initial denial of coverage will not necessarily prevent an insurer from intervening in underlying litigation against a third party.  Thus, claims representatives should keep in mind that an initial denial of coverage does not necessarily foreclose intervention.  Second, this case also makes clear that an insurer does not have to admit coverage in order to intervene.  The insurer only has to acknowledge that coverage may apply and that the disposition of the underlying litigation may, as a practical matter, impair or impede the insurer’s ability to protect its interests.

    Charles v. Consumers Insurance

  • Illinois Appellate Court Allows Evidence of Plaintiff’s Lack of Health Insurance

    Typically, evidence of the existence of health insurance is inadmissible at trial. Nevertheless, the Illinois Fifth District Appellate Court recently concluded that such evidence may be admitted in certain circumstances.

    Although a jury in her trial entered a $30,286.46 verdict in her favor, plaintiff Kathryn L. Vanoosting appealed, arguing that she was deprived a fair trial when the trial court refused her testimony that a lack of medical insurance prevented her from seeking medical attention in the years prior to the trial.

    She also claimed that the jury’s $0 award for loss of a normal life was the result of an improper argument made by defense counsel, who referred to her damages request for both loss of a normal life and pain and suffering as “double dipping.”

    The appeals court unanimously concluded that plaintiff’s lack of health insurance was relevant because plaintiff, “did not seek further treatment due to her lack of insurance is of consequence to her claim for future medical expenses and to the rebuttal of defense theory that she no longer has pain and suffering or a need for treatment due to her lack of treatment in the last three years.” The court was mindful of the potential impact that the plaintiff’s financial position may have on the sympathies of the jury, but concluded that the trial court, upon request, could have restricted the evidence to its proper purpose and scope and instructed the jury accordingly.

     

    Vanoosting v. Sellars, 2012 IL App (5th) 110365, 2012 WL 2161580 (Ill. App. 5th Dist., June 14, 2012).

  • No Title? No Problem?

    A recent decision by the Missouri Court of Appeals for the Eastern District of Missouri is a reminder that title to personal property is not required to prove an insurable interest in that property.  It serves as an example of the court’s general desire to find insurance coverage when possible and the perils of an insurer relying on one issue to the exclusion of others in determining coverage. 

    Pamela Coke and Ward Ferrell purchased an RV from a seller in Sacramento, California.  The RV was titled in the name of, and therefore owned by, Toy Hon USA, a company owned by Ferrell. Coke and Ferrell then used the RV to travel to various states. They spent thousands of dollars in repair costs on the recreational vehicle, built a building in which to store it, and lived in it while building a house.

    In November 2008, Coke was staying in an RV park in Mesa, Arizona when she decided to drive the RV into a nearby mountain range to spend the night.  While driving, Coke became concerned about the RV’s brakes and pulled to the shoulder of the highway to check out a hissing noise coming from the back of the RV.  While Coke was walking next to the RV, it began to roll and eventually tumbled into a ravine.

    At the time of the accident, Coke and Ferrell had an insurance policy with American Family Mutual Insurance Company which included both comprehensive and collision coverage for the RV. Coke and Ferrell were the named insureds on the policy. They made a claim with American Family for the loss of the RV. 

    American Family denied the claim and filed an action against Coke and Ferrell seeking a declaration of no coverage. Coke and Ferrell responded with counterclaims that include a breach of contract and vexatious refusal to pay. The trial court ultimately entered a directed verdict in favor of American Family due to the lack of title in Coke and Ferrell’s name. 

    The Eastern District Court of Appeals reversed this decision.  In support of its decision, the Court of Appeals noted that, generally, title is not a prerequisite to the enforcement of insurance contract.  Instead, in order to enforce the insurance contract, the insured must have an insurable interest in the property both at the time of the contract was made and the time the loss is sustained.  Such an insurable interest may be unrelated to any title, lien, or possession and may exist due to the possession, enjoyment, or profits of the property as well as other benefits growing out of or dependent upon the property.  The Eastern District further noted that Missouri strongly favors finding an insurable interest and the courts will make every effort to find one in order to sustain coverage. 

    The Court of Appeals went on to note that, in this case, the appellants paid for the RV, paid for repairs to the RV, purchased a warranty for the RV, and built a garage in which to store it.  In addition, there was ample evidence that Coke and Ferrell possessed the RV and utilized it for their personal enjoyment. This was substantial evidence that Coke and Ferrell had an insurable interest in the property.

    This case reiterates a series of Missouri decisions supporting the finding of an insurable interest, when possible.  It also reinforces the fact that Missouri Courts will not look to “legal title” alone as a prerequisite or a dispositive fact on the issue of an insurable interest.  Instead, the courts will look to whether the individuals claiming coverage possessed the property and/or received enjoyment, profits, or other benefits growing out of the property, when determining the existence of an insurable interest.

    http://www.courts.mo.gov/file.jsp?id=52439

  • Damage To Your Work And The Duty To Defend – A Case Study

    A recent Missouri lawsuit tested a “damage to your work” exclusion in an insurance policy. This complex case illustrates the danger in an insurer refusing to defend a case where the claim includes damages that may be covered as well as damages that may not.

    Continental Equipment Company hired Cook’s Fabrication and Welding, Inc. to install two mast radial stackers (essentially conveyors to move rocks and gravel from one location to another) at quarries owned by LaFarge North America, Inc.  Greystone, Inc. manufactured the stackers.  After Cook’s completed the installation of the stackers, both collapsed at various times causing damage including impairing the quarries’ ability to continue doing business while the stackers were repaired.  LaFarge and Continental eventually filed a products liability suit against Greystone alleging damages including “lost business, lost business opportunities, lost profits, and expenses.” Greystone filed a counterclaim that included counts against Cook’s for indemnification and contribution alleging that Cook’s negligently installed the stackers. 

    At the time of the stackers’ collapse, Cook’s was insured under a commercial general liability (CGL) policy issued by Mid-Continent Casualty Company.  Mid-Continent initially agreed to defend Cook’s but shortly thereafter withdrew its defense contending that coverage for the incident was excluded by the CGL’s “damage to your work” exclusion.  This clause excluded coverage for any damages in Cook’s work (i.e. the stackers).  Additional litigation ensued and eventually the determination of coverage under the Mid-Continent policy came before the court.  The trial court initially found that the damage to your work exclusion applied and absolved Mid-Continent of any duty to defend or indemnify Cook’s. 

    On appeal, however, the Eastern District Court of Appeals found that the damage to your work exclusion did not apply to all damages claimed.  Because some of the damages claimed were lost profits and the loss of production capacity of the quarries at issue, the Court of Appeals found that the policy coverage did not exclude all damages claimed and, therefore, Mid-Continent had a duty to defend Cook’s in the underlying litigation.  The Eastern District Court of Appeals noted that the duty to defend arises when the facts evidence a claim that is potentially covered and, to be relieved of this duty, an insurer must demonstrate “that there is no possibility of coverage.”

  • Underinsured Motorist Case Studies

    Two recent Missouri court cases involving uninsured motorists illustrate that courts are willing to analyze specific language of the insurance policies, and that they tend to favor the injured party seeking coverage.

    In the first example, Vernie Long was killed when the F-350 truck he was driving was negligently struck by a vehicle driven by Lucas Dray. The wrongful death beneficiaries sustained at least $450,000 in damages. At the time of the accident, Dray was insured for automobile liability in the amount of $50,000 per person and that sum was paid in settlement to Long’s wrongful death beneficiaries on behalf of Dray, who was then released from further liability.  Long and his surviving spouse had seven insurance policies issued to them by Shelter Insurance Companies, which were in effect at the time of the accident.  The wrongful death class sued Shelter for payment of underinsured motorist (UIM) benefits. The trial court found that the policies were ambiguously worded and allowed “stacking” (use of all of the UIM benefits). Shelter subsequently appealed.

    All the policies had “Other Insurance in the Company” clauses which provided that Shelter’s “total liability under all [its] policies will not exceed the highest limit of any one policy.” The court, however, found that the “Other Insurance” clauses in the Shelter policies created an ambiguity in all the policies. In essence, the “Other Insurance” clause appeared to allow stacking while the “Other Insurance in the Company” clause appeared to disallow stacking.  Because ambiguities must be resolved in favor of the insured, the Missouri Western District Court of Appeals found in favor of the plaintiffs and affirmed a judgment in the amount of $400,000 in damages.

    In another case, Kyle Stewart was seriously injured in a single car collision as a passenger in a vehicle driven by Zachary Tanner. Stewart was insured by Liberty Mutual through a policy with a $100,000 limit for underinsured motorists (UIM) coverage on four separate vehicles.  Tanner was insured by American Standard Insurance Company of Wisconsin through an automobile policy with a $100,000 limit. Stewart obtained a judgment against Tanner for $500,000.  American Standard paid Tanner’s $100,000 policy limit while Liberty Mutual denied Stewart’s claim for payment under the UIM coverage.

    Stewart subsequently sued Liberty Mutual, contending it breached its contract by failing to pay the UIM policy limit of $100,000 on each of the four covered vehicles for a total of $400,000.  Liberty Mutual denied any obligation to make additional payments based upon anti-stacking provisions in the policy.  The trial court eventually granted Liberty Mutual summary judgment on the claim that it owed Stewart an additional $300,000.

    The key to the decision lay in the “Other Insurance” clause language providing that the UIM coverage was excess over any other collectible insurance, which provided coverage on a primary basis.  Because UIM coverage is not primary coverage, stacking would not be allowed.

    Both cases illustrate that courts will give specific effect to the language contained in the insurance policies when analyzing underinsured motorist coverage. Because underinsured motorist coverage is not a coverage required by statute, courts seem to be more willing to specifically analyze the language of the various clauses effecting coverage.  Courts, however, will still follow the general rules of construction in interpreting insurance policies and tend to favor a finding of coverage.

  • An Oral Insurance Contract?

    Most people, perhaps even most insurers, would contend that oral insurance contracts do not exist. The following case, however, demonstrates the courts are willing to find oral insurance contracts when there is sufficient evidence.

    Mark and Shelly Lagermann owned property in Wayne County, Missouri, that included a mobile home and an out building they referred to as “the garage.” In the fall of 2008, they began shopping their insurance coverage around, calling local agents, and getting quotes. Mrs. Lagermann spoke to Jeff Parker, an agent for Farm Bureau Town & Country Insurance Company of Missouri. Parker came to the Lagermanns’ property several times and, according to Mrs. Lagermann, told her that “basically this policy covers everything from wind and rain to civil unrest” and he referred to it as the “best policy.” Mrs. Lagermann then informed Parker that the Lagermanns had decided to purchase the policy proposed and Mr. Lagermann went to Parker’s office to complete an application. The application did not reference any particular exclusions or levels of coverage.

    During the effective dates of the policy issued by Farm Bureau, an ice storm occurred and the garage roof collapsed under the weight of the snow and ice. The Lagermanns filed a claim with Farm Bureau and Parker dispatched an insurance adjuster to survey the damage. Farm Bureau informed the Lagermanns that their policy did not provide coverage for losses due to the weight of ice and snow. Farm Bureau further explained that the Lagermanns had only purchased “level 1 protection” which did not insure perils arising from damage due to ice and snow. The Lagermanns sued.

    The trial court found the Lagermanns’ testimony to be more credible than that of Parker’s. In addition, the trial court found that Farm Bureau had never forwarded a copy of the insurance policy to the Lagermanns prior to the loss and that they were not informed of the existence of different levels of coverage until after they had filed their claim for damage to the garage. The trial court ruled in favor of the Lagermanns. The court of appeals affirmed the trial court’s judgment finding that an oral contract of insurance can be created if the following five elements are present:

    1. Subject matter to be insured;
    2. the risk insured against;
    3. the amount of coverage; 
    4. the duration of the risks; and 
    5. the premium.

    The evidence established all of these elements, thereby creating an oral contract of insurance.

    This case offers a couple of lessons for insurers. First, agents with the authority to bind coverage can create an oral contract on behalf of an insurer. Thus, agents should be careful when making casual statements describing broad levels of coverage. Second, insurers should make it a priority to provide their insureds with a full and complete copy of their insurance policy immediately upon approval of the insured’s application and receipt of premium payment. While it is not necessarily clear that this would have avoided the result in this case, it certainly would have put the insureds on notice that there were certain exclusions in the policy which would avoid coverage for certain types of losses.

  • Playing With Fire: Insurer Disregards Its Investigation of Loss And Pays The Price

    This interesting case arose out of Farm Bureau Town & Country Insurance Company of Missouri’s refusal to pay a property claim after a fire loss.

    While out of town for work, Troy Myers received a phone call advising him that there had been a fire at his home. When he arrived home, he found it to be a total loss. He immediately reported the loss to his insurance agent. Claims representative Peter Hall contacted Myers and arrived at the site the following day. Farm Bureau also retained an expert to determine the cause and origin of the fire. This expert concluded that the fire was not suspicious and that it had originated from a junction box that was struck by lightning.

    Myers was in a relationship with Molly Brawley, and they had a daughter. At the time of the fire, Brawley had moved out and was not living with Myers.

    After the fire, Myers and Brawley moved back in together in a camper trailer for a few weeks. Brawley, however, left again and took their daughter with her. This time, she told Myers that he would never see the daughter again. Myers told Brawley that, once he received the fire insurance proceeds, he would hire an attorney and obtain custody of the daughter. Subsequently, Brawley called the State Fire Marshal’s office and the arson hotline to report that Myers started the fire.

    Hall asked Myers to provide a sworn statement concerning his personal property claim, which Myers did. Myers was aware of Brawley’s accusations against him and explained to Hall that he believed Brawley to be vindictive and that they had a child together who was the subject of a custody dispute. After Myers provided a sworn statement, Hall refused to speak with Myers about the claim and did not return phone calls. Farm Bureau eventually denied Myers’ claim and he filed suit.

    At the end of the trial, the jury found in favor of Myers and also found that Farm Bureau’s denial of this claim was vexatious, or without reasonable cause or excuse. Therefore, he was able to recover his attorney’s fees as well as the damages he sustained. On appeal, the Southern District Court of Appeals affirmed and found that there was more than sufficient evidence to justify a finding of vexatious refusal to pay. The Court noted that the evidence included the following: (1) Brawley was the only witness who testified against Myers, that her testimony was inconsistent, and that the trial judge found her to be one of the least credible witnesses the judge had ever seen; (2) Farm Bureau disregarded its own expert’s opinion that the fire was accidental in origin; and (3) Hall never investigated whether Brawley had a motivation to lie in order to deprive Myers of the funds he needed for the custody dispute.

    Insurers can take away a number of lessons from this case. First, ignore your expert at your own peril. Once Farm Bureau had retained an expert who found the cause to be non-suspicious in origin, it was at a severe disadvantage in defending its decision to deny Myers’ claim. Second, keep communication with the insured open and get both sides of the story. It appears that Farm Bureau chose to believe Brawley’s story without fully investigating it. This is true even after its insured advised Farm Bureau that Brawley had a reason to fabricate her allegations against him. Jurors, who are all insureds of some type, do not like to think that their insurer would refuse to communicate to them about a loss, and Farm Bureau would have been in a much better position had its claims representative kept dialog open with its insured.

  • Damages Agreements with Plaintiffs Become A Little More Dangerous for Insurers

    The Missouri Supreme Court recently issued a decision making it more difficult for insurance companies to contest 537.065 agreements.  In Shmitz v. Great American Assurance Company (Mo. S. Ct. Case No. SC91098), the parents of Christine Ewing brought a wrongful death suit after she died as a result of injuries she sustained after falling while climbing a portable rock wall.  Marcus Floyd owned and operated the rock wall during a minor league baseball game.  The parents brought suit against Floyd and Columbia Professional Baseball (“CPB”), the owner of the minor league baseball team at whose stadium the death occurred.

    CPB was insured by Virginia Surety Company and Great American Assurance Company.  Virginia Surety’s policy was primary with coverage of $1,000,000 and Great American’s policy provided excess coverage of $4,000,000.  Both insurers received notice of the claim, but denied a duty to defend based upon a policy exclusion in Virginia Surety’s policy. 

    Section 537.065 of Revised Statutes of Missouri allows an insured to enter into an agreement with a plaintiff limiting recovery to any available insurance proceeds after an insurer has denied coverage.  CPB and the parents entered into such an agreement.  The parents then proceeded to a bench trial which resulted in CPB being found liable and a judgment entered in the amount of $4,580,076.00.  The parents then filed an equitable garnishment action to garnish the policy limits of the policies issued by both Virginia Surety and Great American. 

    Virginia Surety subsequently settled with the parents, but Great American continued to defend the case on a number of grounds, including, on the basis that the 537.065 agreement was in an unreasonable amount (i.e. the verdict amount was unreasonable).  Great American relied on prior case law indicating 537.065 settlements must be in a reasonable amount and that the amount of the judgment was not reasonable. 

    The Missouri Supreme Court disagreed with this defense finding that the reasonableness test applied only to settlements, rather than judgments.  Because the parents had not settled with CPB for a specific amount and, instead, tried their case to the court, Great American was no longer able to contest whether the amount of the judgment was reasonable. 

    Prior to this decision, insurers and defense counsel may have assumed that they would be able to contest the reasonableness of any judgment obtained pursuant to a 537.065 agreement.  Such, however, is not the case.  Therefore, assuming a plaintiff and an insured enter into a 537.065 agreement and allow a court to determine the damages rather than stipulate to the amount of the settlement, an insurer will be unable to contest the amount of the judgment in subsequent proceedings to collect the judgment.

    See Schmitz v. Great American Assurance Company (Missouri Supreme Court Case No. SC91098)

  • Typographical Error Does Not Make Insurance Policy Ambiguous

    While a typographical error may make you cringe, the blunder may not have negative legal implications according to a decision by The Court of Appeals for the Western District of Missouri. The court held a typographical error in an insurance company’s liability policy did not make the policy ambiguous.
     
    The case started as a wrongful death suit when a passenger who was involved in a car accident died as a result of injuries.  The victim’s daughter filed suit against the driver to recover damages.  After a trial the circuit court entered a judgment against the driver for $175,000.

    However, the insurance company refused to pay more than $25,000, which was the policy’s per-person limit of liability for bodily injury claims.  The plaintiff then argued that because the insurance company’s policy contained a typographical error that identified both the bodily injury and property damage coverage as coverage A, instead of bodily injury as A and property damage as B, the policy was ambiguous.  She argued that this ambiguity in the policy resulted in no limits for the bodily injury coverage rather than the $25,000 per person policy limit.

    Luckily for the insurance company, the Court of Appeals disagreed with the decision and reversed it stating that an ambiguity exists only “when there is duplicity, indistinctness, or uncertainty in the meaning of the language in the policy. Language is ambiguous if it is reasonably open to different constructions.” The Court of Appeals reasoned that the typographical error was clearly an error and that there was no way the policy could be rendered to read as limitless even with the mistake.  This decision is surely a relief to insurers as human errors inevitably do happen.

    See Mendota Insurance Company v. Ware, (Missouri Court of Appeals, Western District, Case No. WD72766).

  • Other Insurance Clause Creates Ambiguity in Underinsured Motorist Coverage

    Ambiguity in insurance policies is always a hot topic and decisions by Missouri courts can make insurers and those who bring lawsuits against them unsure of what outcome to expect.

    For example, Donna Ledbetter was injured when a Dodge pickup operated by Danny Harris collided with the vehicle she was driving.  Harris was covered by a Cornerstone National Insurance liability policy with limits of $50,000 for injuries sustained by any one person in a motor vehicle accident.  Ms. Ledbetter brought suit against Harris and settled her case for the Cornerstone policy limits.

    At the time of the accident, Ledbetter had an insurance policy with Hartford Underwriters Insurance Company.  Ledbetter made a claim for underinsured motorist coverage for the terms of her policy which provided $50,000 in UIM coverage on each of her four covered vehicles. Ledbetter claimed that she could stack these coverages for a total UIM coverage of $200,000.

    Hartford filed a motion for summary judgment and prevailed on the basis that the Harris vehicle was not an underinsured motor vehicle as defined in the Hartford policy.  The Hartford policy defined underinsured motor vehicle as “A land motor vehicle or trailer of any type to which a bodily injury liability bond or policy applies at the time of the accident but its limit for bodily injury liability is less than the limit of liability for this coverage.”  Hartford contended that, because the Cornerstone policy’s liability limits were $50,000 and the Hartford UIM limits were $50,000, the Harris vehicle was not considered an underinsured motor vehicle under the Hartford policy.  The trial court agreed and entered summary judgment in favor of Hartford.

    The Missouri Court of Appeals for the Southern District of Missouri, however, reversed the trial court’s decision.  The Court of Appeals found that the other insurance clause in the Hartford policy created an ambiguity.  The other insurance clause in the Hartford policy contained the following provision:  “Any insurance we provide with respect to a vehicle you do not own shall be excess over any collectible insurance providing such coverage on a primary basis.”  The Southern District stated that reading the other insurance clause in conjunction with the underinsured motorist coverage provisions could result in an interpretation of the policy such that it provided UIM coverage.  Specifically, the policy could be read to mean that underinsured coverage was excess to amounts recovered from the tortfeasor and also could be interpreted to mean that the other insurance clause prevailed over the preceding and apparently conflicting language contained in the policy’s definition of underinsured and limits of liability sections.  Thus, the Southern District found that the Hartford policy did provide underinsured motorist coverage under the terms of its policy and reversed the trial court’s entry of summary judgment in favor of Hartford.

    It’s an interesting case that seems to find ambiguous an otherwise straight forward definition of underinsured motor vehicle.

    See Hartford Underwriters Insurance Company v. Ledbetter, (Missouri Court of Appeals, Southern District, Case No. SD30891).

  • Mandatory Arbitration Clause Undergoes Stress Test in Massage Therapy Case

    What started out as a client’s relaxing session at a local massage therapy office ended up as a headache for the therapist and the risk retention group (“RRG”) insuring her business in Missouri.   In a recent ruling, the Missouri Court of Appeals held that arbitration clauses are not enforceable in insurance policies issued by a RRG, just as they have been found to be unenforceable in other types of insurance policies.

    In this case, a licensed massage therapist was covered by a professional liability insurance policy when the massage table on which she was treating a client collapsed, causing the client to fall. The client sued the therapist for her personal injuries. The insured therapist sought coverage under an insurance policy issued by a RRG who ultimately denied coverage and refused to provide a defense in the underlying personal injury suit.

    The insured filed a breach of contract action against the RRG, seeking damages in the amount of the attorney’s fees incurred as a result of the failure to defend. Defendant filed a motion to compel arbitration seeking to invoke a mandatory arbitration clause in the insurance policy.  The trial court denied the motion, finding that the insured cannot be compelled to arbitrate because Missouri law prohibits mandatory arbitration clauses in insurance contracts.

    Although the Missouri Court of Appeals recognized that contractual arbitration clauses are generally enforceable in cases involving interstate commerce under the Federal Arbitration Act, the case turned on an exception to federal preemption under the McCarran-Ferguson Act, which allows states to regulate the business of insurance.  In confirming the lower court’s ruling, the Court of Appeals upheld the applicability of McCarran-Ferguson and also declined to extend to the RRG protections otherwise not available to insurers under the federal Liability Risk Retention Act.

    Once again, a Missouri court has re-emphasized the general rule that arbitration clauses cannot be used in insurance policies, and broadened it to include risk retention groups.  If the case is further appealed, it is unlikely that the Missouri Supreme Court will carve out an exception to this general rule.

    Sturgeon v. Allied Professionals Ins. Co., Case No. ED 94605 (Mo.App.E.D.) (Decided March 8, 2011).

  • Section 537.065 Agreements and Other Things That Go Bump in the Night

    There are things in this world that have the ability to cause significant losses for insurers—hurricanes, earthquakes, fires, and catastrophic injury claims are just a few. In the insurance business in Missouri, one of those things is a Section 537.065 agreement. In practice, these agreements essentially have the effect of allowing a degree of cooperation between a claimant and an insured and can result in significant damage awards against an insured, which the claimant then attempts to force the insurer to pay.

    The agreements are specifically authorized by Section 537.065, RSMo. and arise after an insurer denies coverage to its insured. Pursuant to such an agreement, the insured then essentially agrees not to contest any claim made against the insured in exchange for the claimant’s agreement not to execute on any assets of the insured other than the proceeds of an insurance policy.

    The worst part about most 537.065 agreements is that insurance companies usually don’t hear about them until a claimant is seeking recovery under a policy for a judgment obtained without the insurer’s involvement. By then, it is too late to go back and defend the claim on the merits. The good news is that Section 537.065 agreements can, for the most part, be avoided or minimized with the application of sound legal knowledge, good claims handling, and some prior planning.

    Claims adjusters first need to be aware that these agreements exist and the extent to which they can result in damages far greater than expected. Second, insurance companies need to make sure they are certain of their coverage position and the facts supporting a denial of coverage before immediately rejecting a claim for a seemingly obvious reason. This can be difficult in some cases and may require the insurer to defend a claim under a reservation of rights, thereby protecting the insurer against the parties entering into a 537.065 agreement. During the defense under a reservation of rights, coverage can be further investigated.

    Finally, to minimize the potential for an erroneous denial of coverage and the insured entering into a Section 537.065 agreement, an insurer should ensure that its claims personnel are trained not only to investigate the facts relevant to defending a claim on the merits, but also the facts upon which a coverage determination can be made.

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