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A new decision on legislative changes to Bad Faith statutes.
July 2018  |  Bad Faith Update  |  Vol. 4 Iss. 9

Western District Decides Application of Amended §537.065


With the flurry of legislative changes to Bad Faith and extra-contractual statutes, the impact of these changes remains largely undeveloped.
 
These changes or additions to the legislative code have generated questions as to whether these new provisions apply retrospectively or prospectively to both ‘time-limited demands’ and §537.065 agreements sent and entered prior to the effective dates of the amendments to §537.065.
 
The Western District of Missouri has now appeared to weigh in on the application of the amendments to §537.065 to agreements entered under that section prior to August 28, 2017.
 
Amended §537.065
 
Prior to diving into the Western District’s decision, a review of the amendments to §537.065 (made effective on August 28, 2017) deserve a quick review.
 
Prior to the amendments, claimants and tortfeasors were permitted to enter into agreements limiting recovery of any judgment to insurance proceeds or any other specified asset.
 
While the amendments to §537.065 did not necessarily eliminate this right, it did significantly modify and provide for additional requirements to permit such agreements to be entered and judgments to be entered following the execution of such agreements.
 
These modifications and additions include that:
  • An agreement can only be entered after the tortfeasor’s insurer ‘has the opportunity to defend the tortfeasor without reservation but refuses to do so;’ and  
  • Before a judgment can be entered against the tortfeasor after the entry of a contract under this section:  
    • The insurer shall be provided with written notice of the execution of the contract; and
    • Shall be given 30 days after receipt of notice of the agreement to intervene as a matter of right. 
Desai v. Seneca Specialty Ins. Co.
 
The Desai decision dealt with whether the amendments to §537.065 concerning an insurer receiving notice and being allowed the opportunity to intervene before a judgment was entered applied to .065 agreements entered prior to August 28, 2017.
 
Background
 
Mr. Desai was injured in October 2014 while being escorted from a club owned by Garcia Empire. At the time of Mr. Desai’s injury, Garcia Empire was insured by Seneca under a CGL policy. Garcia Empire notified Seneca of the claim and the Desai’s lawsuit and Seneca offered to defend Garcia Empire under a full reservation of rights to deny coverage.
 
Garcia Empire rejected Seneca’s reservation of rights defense and entered into a .065 agreement with the Desai’s in November 2016, under which the Desai’s limited recovery of any judgment to the assets of Seneca. The underlying lawsuit was tried to the court on August 17, 2017 and a judgment was entered in favor of the Desai’s and against Garcia Empire on October 2, 2017.
 
On October 31, 2017, Seneca filed a motion to intervene as a matter of right and for relief from the judgment under Rule 74.06(b). Seneca’s arguments were based on its belief that under the amendments to §537.065 it was entitled to notice of the .065 agreement and should have been permitted the opportunity to intervene prior to entry of judgment. Seneca argued the amendments were a procedural change that operated retroactively to require the parties to give Seneca notice of the agreement and that Seneca be given an opportunity to intervene prior to a judgment being entered. The trial court denied Seneca’s motion and Seneca appealed.
 
Appeal
 
On appeal, Seneca raised several arguments as to why it was entitled to notice of the entry of the .065 agreement and why it should be entitled to intervene. However, the Court rejected all of these arguments in finding that the rights to notice and an opportunity to intervene created by the amended §537.065 do not apply to contracts entered before August 28, 2017.
 
In part, the Court based its decision on the settled principal that prior to August 28, 2017, carriers did not have the right to intervene in an underlying liability lawsuit and did not have a right to receive notice of the entry of a .065 agreement before judgment was entered against their insureds. Thus, before the amendments took effect, the parties to the .065 agreement had no duty to notify an insurer about the contract and the parties had a right to seek a judgment without the insurer’s participation. If the amended §537.065 statute was to be applied to .065 agreements entered into before August 28, 2017, new duties and obligations would be imposed on the parties and the legal effect of the contract would be altered. This would violate the Missouri Constitution on the retrospective application of law.
 
The Desai decision, that insurers are not entitled to notice prior to executing an .065 agreement or to intervene, if the subject agreement was entered into prior to August 28, 2017, provides the first answer to the many questions raised by the legislative revisions bearing on bad faith and extra-contractual liability.
 
As time passes, the Court’s holding may be less likely to come into play, but for now, practitioners are provided with a hardline rule on agreements entered into before August 28, 2017.
"My legal practice involves keeping up with the latest cases involving bad faith claims. Contact me if you need advice."

- Kirk Presley
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