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Preventing carriers from litigating facts twice.
Jan. 2017  |  Bad Faith Update  |  Vol. 3 Iss. 3

Allen v. Attain


The Impact of an Underlying Judgment


On December 20, 2016, the Supreme Court handed down its Opinion in Allen v. Attain Specialty Insurance Company, SC95358. The Western District’s opinion in Allen had been the topic of the September 2015 Bad Faith Update discussing the means of satisfying an excess judgment.

Like the Western District’s opinion, the Supreme Court’s recent decision touches on numerous issues associated with extra-contractual litigation against insurance carriers. The focus of this Bad Faith Update will center on the Court’s reaffirmation that denying carriers are bound by the results of litigation which the carrier had the opportunity to control and manage.

Background

Franklin Allen filed an underlying lawsuit against Wayne Bryers for injuries sustained by Allen in an accidental shooting. The underlying lawsuit, along with pre-suit communications, alleged that Allen’s injuries were caused by the negligence of Bryers while Bryers was acting within the course and scope of his employment with an apartment complex.

Attain Specialty Insurance Company initially denied coverage to Bryers and filed a declaratory judgment action against Bryers before suit was filed and failed to provide a defense for Bryers in the underlying lawsuit without an assurance of coverage.

A judgment was ultimately entered in the underlying lawsuit in favor of Allen for $16 million.

Allen then pursued a Rule 90 garnishment against Attain in an effort to collect the $16 million judgment entered in the underlying lawsuit. The garnishment court granted summary judgment in favor of Allen and awarded Allen $16 million after finding there was coverage and Attain breached its duty to defend Bryers.

Supreme Court’s Holding

The Supreme Court upheld the trial court’s finding that the policy of insurance issued by Attain provided coverage for the judgment entered and that Attain wrongfully refused to defend its insured (Bryers) in the underlying liability action.
 
The Court determined that the factual findings necessary to the underlying judgment were conclusively binding on Attain and its policy defenses based on the facts giving rise to the loss failed.

As such the Court affirmed Attain’s liability for its policy limit and interest.

Carriers Are Bound by the Result of Underlying Litigation

In nearly every case in which extra-contractual damages are sought the carrier involved challenges or attempts to collaterally attack the judgment entered in the underlying lawsuit. Allen was no exception as Attain attempted to argue it was not bound by the findings contained in the judgment entered in the underlying lawsuit.

The Supreme Court rejected these arguments and instead reaffirmed prior decisions of Missouri appellate courts holding that a carrier who was presented the opportunity to control and manage litigation in which its insured was a party is bound by facts necessarily determined in that litigation. A carrier who fails to extend coverage to its insured does not get a second chance to litigate facts in subsequent coverage and extra-contractual proceedings. This is only appropriate because there is no better proof of the nature of the indemnifiable claims than the critical facts determined in the underlying proceeding and reduced to judgment.

The Court’s reasoning in Allen is correct and provides necessary protections to both insureds and claimants by holding carriers accountable for its coverage decisions. Claimants cannot be forced to litigate facts in both the liability action and the following coverage actions. In addition, carriers can no longer ignore the interest of their insured by denying the benefits guaranteed under the policy for indemnifiable claims while using a coverage dispute as a negotiating tool.
  
In next month’s Bad Faith Update we will look at what Allen means for intervention efforts in the underlying case.
"I've been working on bad faith cases for over 30 years. If you need help, contact me for advice."

- Kirk Presley
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