Over the last several months Missouri Appellate Courts have issued several opinions touching on areas of importance to coverage and bad faith litigation.
Below are discussions of three recent Missouri decisions impacting and highlighting various issues common to Missouri insurance litigation.
Nooter Corp. v. Allianz Underwriters Ins. Co., et al.
Late Reliance on Exclusion Potential Evidence of Vexatious Refusal or Bad Faith
Nooter involved a complex set of Asbestos claims with numerous excess carriers, issues of exhaustion, and priority of policies. However, interwoven in the Eastern District’s lengthy opinion was a discussion of possible evidence to support a vexatious refusal claim.
As part of the appeal, an excess carrier challenged a jury verdict that it was liable for vexatious refusal to pay. The carrier’s argument centered on a lack of sufficient evidence for the jury to conclude it was liable for vexatious refusal.
In finding sufficient evidence had been adduced, the court took note of the testimony from Nooter’s counsel that, despite consistently keeping the excess carrier informed of new claims from those exposed to asbestos, the excess carrier only sent repetitive letters to its insured and continually made no offers to pay despite a growing number of claimants. In addition, the Court noted the testimony of Nooter’s expert that the excess carrier’s failure to promptly identify an exclusion fell short of the custom and practice of the insurance industry which requires carriers to identify facts and policy provisions implicated so that the insured is adequately advised of the issues. Here, the excess carrier failed to identify a potentially applicable exclusion in correspondence with the insured until eight to nine years after sending its first reservation of rights letter.
Previous cases have held that the failure of a carrier to promptly identify coverage defenses may give rise to estoppel and waiver arguments for coverage in certain circumstances. The Nooter decision seems to indicate that this failure may also provide evidence of vexatious refusal and potentially bad faith on the part of the carrier.
United Fire & Cas. Co. v. Hall
Interpretation and Application of Policy Exclusions
Hall involved a boating accident and the application of an owned watercraft exclusion in a homeowner’s policy. The case centered on a boating accident in which Zachary Hall lost his foot after being struck by a propeller when Lucas Hall started a boat. The boat involved was titled in the name of The Jeffrey L. Cox Living Trust. At the time of the accident, Lucas’ father, Jeffrey Cox, was a named insured on two homeowner’s policies issued by United Fire.
The Hall family eventually filed suit against Lucas Cox and Jeffrey Cox for Zachary’s injuries and after certain settlements, United Fire filed a declaratory judgment action alleging that the homeowner’s policies did not provide coverage for Zachary’s injuries. United Fire’s position was based on the presence of an owned watercraft exclusion providing that no coverage was provided for the use of a watercraft ‘owned by or rented to an insured.’ After the trial court determined the exclusion was ambiguous and that coverage was applicable, United Fire appealed.
On appeal, the Southern District agreed that the phrase ‘owned by’ was ambiguous when applied to the facts presented as a result of ‘owned’ and ‘owner’ not being defined in the policy and being subject to multiple meanings. While Jeffrey was a named insured, the boat was titled in the name of a trust and Jeffrey’s interests in the boat were limited by law and by the terms of the trust. These limitations, coupled with the multiple meanings of ‘owned’ and ‘owner’ required the policy to be interpreted in favor of coverage for the insured.
Hall highlights Missouri insurance interpretations principles including that the carrier bears the burden of establishing the applicability of exclusions and that any ambiguity will be resolved in favor of a finding of coverage for the insured. Hall also underscores the need for a close examination of every policy and all facts bearing on coverage.
Davies v. Barton Mut. Ins. Co.
What Constitutes an Occurrence & Collateral Estoppel
Davies involved an equitable garnishment and declaratory judgment action turning on what events constitute an occurrence under a policy. The Buyers of a house had previously been awarded a judgment after a jury trial against the Builder of a house on claims for breach of the implied warranty of habitability as a result of the consistent flooding of the home.
The Buyer’s equitable garnishment action claimed the loss and judgment were based on an occurrence while the carrier alleged in its declaratory judgment action that there had been no occurrence. After submissions by the parties, the trial court ruled that the Builder’s failure to construct the house so that it did not flood constituted an occurrence under the policy and the carrier appealed.
The Southern District, in reversing and remanding the trial court’s judgment, noted the coverage provisions of the policy required any loss be caused by an occurrence which was defined to mean “an accident and includes repeated exposure to the same or similar conditions.” Based on this definition, the Southern District went on to mention several Missouri cases noting that generally negligent conduct will constitute an occurrence when that term is defined as an accident.
In the present case, there had not yet been a finding by the trial court of negligence and evidence of negligence or fault was not necessary for the Buyers to recover on their claim for breach of the implied warranty of habitability. Further, while a carrier is collaterally estopped from challenging an underlying judgment as to facts necessarily and actually determined in the underlying litigation, the underlying litigation did not contain a finding of negligence on the part of the Builder nor was a finding of negligence necessary.
The Davies decision is still subject to a motion for rehearing or transfer to the Supreme Court. However, the need to plead claims and adduce facts within coverage is essential and necessary to bind a carrier.